Personal Income Inches Forward, Spending Rises Again

The consumer continues to spend though income isn't that strong. Personal income, for a second month in a row, inched 0.2 percent higher in June, in contrast to spending which, also for a second month in a row, rose 0.4 percent. The gain in spending was funded to a degree by savings as the savings rate is down 2 tenths to 5.3 percent.

There isn't much positive movement in inflation data with both the overall PCE index and the core index (ex-food ex-energy) up only 0.1 percent. Year-on-year shows no improvement at all with the overall rate unchanged at plus 0.9 percent and unchanged at plus 1.6 percent for the core.

Turning back to income, wages & salaries did improve a bit, up 1 tenth for a plus 0.3 percent gain. Details on spending show an outsized 0.7 percent increase in nondurables in a gain, however, tied in part to higher oil prices, not increased demand. Service spending rose a very solid 0.5 percent for a second straight month while durable goods fell 0.3 percent in June following a 0.4 percent decline in May, both reflecting weak vehicle sales. Durable goods are a sleeper here for July, possibly bouncing back should vehicle sales prove strong (July unit vehicle sales will be posted through the day).

This report is moderate. The strength in spending needs to continue for the economy but spending won't have much legs if income doesn't pick up.

Recent History Of This Indicator:
A rise in personal spending data for June would be no surprise given consumer spending strength in the just released second-quarter GDP report. Following outsized strength in April and modest strength in May, forecasters see spending rising 0.3 percent in June. Personal income is also expected to post a meaningful gain, also at 0.3 percent following a 0.2 percent gain in May. Meaningful gains, however, are not expected for the core PCE price index where the consensus is calling for only a 0.1 percent increase.