Income And Spending Rise In August

The consumer is making money and spending money at the same time that inflation is very quiet. Personal income rose 0.3 percent in August which is on the low side of expectations but July is now revised 1 tenth higher to a very solid 0.5 percent. And the wages & salaries component is also very solid, at plus 0.5 and 0.6 percent the last two months. Turning to spending, the gain is 0.4 percent which is 1 tenth above consensus with July revised 1 tenth higher to 0.4 percent also.

Inflation readings came in as expected, at no change for the PCE price index and up only 0.1 percent for the core. Year-on-year, overall prices are up only 0.3 percent, which is unchanged from July, with the core ticking 1 tenth higher to 1.3 percent which is still well below the Fed's 2 percent target.

The savings rate is solid at 4.6 percent and has been edging lower from 4.9 percent in April. This may be a sign of confidence among consumers who are now willing to spend while saving less. Other details include a rise for rents but a dip for proprietor income.

This report is very healthy but how it plays for the FOMC is uncertain. Income and spending would justify a rate hike but not the inflation readings.

Recent History Of This Indicator:
The core PCE price index - the most closely watched of all inflation indicators right now - is expected to inch only 0.1 percent higher in August which wouldn't be enough to turn up the liftoff heat for the October FOMC. This index has been very soft with the year-on-year moving backwards in July to only plus 1.2 percent. The overall PCE price index, pulled down by energy, has been dormant, barely over zero year-on-year with no change expected for the August reading. Personal income is expected to stay firm, up 0.4 percent after posting a similar gain in July that included a sizable 0.5 percent monthly rise the for wages & salaries component. Consumer spending, which will offer data on service spending, is expected to rise a moderate 0.3 percent.