There are two reports on the economy worth mentioning this morning. First, data from the U.S. Department of Commerce showed that personal income for Americans rose by 0.2 percent ($39.3 billion) in August, in line with expectations but the weakest pace of expansion since February due largely to a slowdown in wage growth. Personal saving as a percentage of disposable personal income (the personal saving rate) lifted to 5.7 percent last month and consumer spending, which accounts for almost 70 percent of the U.S. economy (GDP), was flat. The latter disappointed economists’ expectations but on a year-over-year basis spending is still up a healthy 3.62 percent. However, higher prices for certain goods and services may be contributing to the uptick in annual consumption, e.g. spending on rent as percentage of disposable income is closing in on a record high in America. Further, the personal consumption expenditures (PCE) core price index, the Federal Reserve’s preferred measure of consumer inflation in America, posted a year-over-year rise of 1.69 percent in August. That is the highest reading since September 2014 and should therefore help Fed officials justify a rate hike sometime later this year.
Elsewhere, the consumer sentiment index from the University of Michigan ended September at 91.2, the highest reading since June and better than economists had expected. However, Richard Curtin, director of the Michigan Survey of Consumers, stressed that “The data provide no evidence of an upward trend as the average level of the Sentiment Index since the start of 2016 is nearly identical with the September level (91.4 versus 91.2).” Under the hood, Americans’ outlooks for the future improved this month due mainly to a continued drop in consumers’ inflation expectations, particularly among upper income households. Views of current economic conditions, though, deteriorated in September as there were fewer reports of recent income gains. Reported buying plans also edged downward this month because of the declining availability of price discounts, and the report’s authors project that real personal consumption expenditures will increase by just 2.7 percent through mid-2017.
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. Census Bureau, FRBD, FRBSLPost author: Charles Couch