There were a few important reports on the U.S. economy released this morning. First, data from the U.S. Department of Commerce showed that personal income for Americans was little-changed in June (down by less than 0.1 percent). That was much worse than the 0.4 percent gain economists had anticipated and the prior month’s figure was revised slightly lower. However, this headline weakness was exacerbated by dividend volatility, which overshadowed the solid pickup in wages and salaries growth (0.1 percent in May to 0.4 percent in June). During this same period, consumer spending, which accounts for roughly two-thirds of the economy (GDP), rose by 0.1 percent. That was in line with expectations and the May gain was revised higher. Spending growth, though, is still relatively weak, which suggests that even with a solid job market, healthy household balance sheets, and low borrowing costs, many Americans continue to wait for a much faster pickup in wages before boosting consumption. As for those that cannot wait, it appears that dipping into their savings is a popular option because the personal saving rate (personal saving as a percentage of disposable personal income) fell to just 3.8 percent in June, one of the lowest readings of the current economic cycle. Also included in this report are the personal consumption expenditures (PCE) price indices, the Federal Reserve’s preferred measures of consumer inflation in America. On a year-over-year basis, headline PCE rose by 1.4 percent in June and core PCE expanded by 1.5 percent, both still well below officials’ 2 percent “target.” Muted inflation pressures together with the weak spending data should make it easier for the Fed committee to continue to justify its gradual pace of interest rate normalization.
Elsewhere, the manufacturing purchasing managers' index (PMI) from IHS Markit rose to 53.3 in July, the first gain since January and a 4-month high for the activity gauge. Under the hood, new orders rebounded from June’s 9-month low, which surveyed managers attributed to an upturn in client demand. Work backlogs continued to fall in July, helped by staffing levels expanding at the strongest pace in five months. Somewhat less encouraging was the Institute for Supply Management's (ISM's) manufacturing index, also released this morning, which fell to 56.3 in July. That was a slightly smaller decline than anticipated and still one of the best headline readings of the current expansion. However, measures of new orders, production, employment, and exports all deteriorated in July. Comments from surveyed managers, though, remained generally positive in July.
Sources: Econoday, Bloomberg, U.S. DoC, IHS Markit, ISM, FRBSLPost author: Charles Couch