A new report from the U.S. Department of Commerce showed that personal income for Americans rose by 0.2 percent in August, in line with expectations. After-tax, inflation-adjusted income, though, fell by 0.1 percent last month, the first such decrease of 2017. During this same period, consumer spending, which accounts for more than two-thirds of the economy (GDP), rose by 0.1 percent, matching estimates but still a much smaller gain compared to the prior month.
Zooming out, the annual pace of growth seen in Americans’ incomes and outlays remains good but not great, similar to the overall economy. Also included in this report are the personal consumption expenditures (PCE) price indices, the Federal Reserve’s preferred measures of consumer inflation. On a year-over-year basis, core PCE rose by just 1.3 percent in August, the slowest pace of annual growth recorded since October 2015 and well below officials’ 2 percent “target.” Altogether, muted inflation pressures and modest spending growth should make it easier for the Fed committee to continue to justify its gradual pace of interest rate hikes.
Sources: Econoday, Bloomberg, U.S. DoC, U.S. BEA, FRBSLPost author: Charles Couch