Personal Income And Spending Both Rise As Expected

The July personal income & outlays report is about exactly what the Federal Reserve is looking for: moderation to still solid levels of income and spending growth and steady readings on inflation that are right on target.

Personal income rose 0.3 percent while consumer spending rose 0.4 percent, both hitting Econoday's July consensus. The PCE price index managed only a 0.1 percent gain which falls 1 tenth short of the consensus but the more closely watched core rate rose 0.2 percent to hit the consensus. The year-on-year rate for the core also hits the consensus, up 1 tenth to 2.0 percent which is exactly the Fed's target.

Details on income are favorable with wages & salaries rising 1 tenth more than the headline, up 0.4 percent. Proprietor income and personal interest income both slowed in the month to pull down the total. The savings rate is neutral in today's report, down 1 tenth to what is still a very strong 6.7 percent.

Spending data in July were held back for a second month by durable goods which reflects softness in vehicle sales. Service spending rose a solid 0.4 percent though down 2 tenths from June.

One soft detail in the report is a 1 tenth slowing in real disposable income, up only 0.2 percent in July. Weakness here will definitely limit the strength of consumer spending which for right now, however, is right where the Fed wants it.