There were two important reports on the economy released this morning. First, data from the U.S. Department of Commerce showed that personal income for Americans rose by 0.45 percent ($71.6 billion) in July, in line with expectations and due largely to solid increases in wages and salaries. The June print was revised higher and total personal income on a year-over-year basis as a result lifted by 3.26 percent in July, the fastest pace of annual growth since April. Personal saving as a percentage of disposable personal income (the personal saving rate) lifted to 5.7 percent last month but consumer spending, which accounts for almost 70 percent of the U.S. economy (GDP), still increased by 0.33 percent. That matched economists’ expectations and equated to a 12-month gain of 3.81 percent, a slight decline from June but still one of the best annual growth rates of the past year. Elsewhere in the report, the personal consumption expenditures (PCE) core price index, the Federal Reserve’s preferred measures of consumer inflation in America, posted a year-over-year rise of 1.57 percent in July. That is down fractionally from June and therefore should not provide any additional pressure on Fed officials to move faster with interest rate normalization.
Elsewhere, a report from the Federal Reserve Bank of Dallas showed that business activity in the southern region of the country slowed this month. Specifically, the general activity index fell from -1.3 to -6.2 in August, worse than expected and the 20th negative (contractionary) print in a row. However, the production index, a key measure of state manufacturing conditions, rose in August (+0.4 to +4.5) and is now firmly signaling expansion for the first time since April. Under the hood, current measures of capacity utilization, new orders, shipments, and wages/benefits all improved this month but employment, hours worked, and capital expenditures deteriorated. Forward looking indicators (six months ahead) generally softened in August, and one of the surveyed manager stressed that “Department of Labor rules and regulations are slowing growth and reducing hiring due to increased management time spent on compliance and higher costs of labor.”