Personal income for Americans rose by 0.4 percent in June, according to a new report from the U.S. Department of Commerce. That was better than the 0.3 percent gain analysts anticipated, the 40th monthly increase in a row, and enough to lift the annual rate of growth to a 6-month high of 4.94 percent. Further, inflation-adjusted disposable income improved in June, as did Americans’ personal saving rate. Consumer spending, which accounts for the bulk of the U.S. economy (GDP), also rose last month. The 0.3 percent gain was in line with expectations and the May increase was revised higher to 0.5 percent.
These solid consumption figures bode well for gross domestic product growth and only add to the recent uptick in positive economic data that provide little evidence of an impending recession. It might seem unnecessary for the Federal Reserve to cut interest rates in such a strong environment, but monetary policymakers later this afternoon will likely cite concerns about the much softer economic conditions overseas and inflation having been “too low for too long” as justifications for preemptive easing. Moreover, both the headline and core readings on the PCE deflator, the Fed’s preferred measure of household price changes, came in below forecasts in June. Going forward, though, the earlier weakness in consumer inflation could prove to be transitory if businesses start passing on rising labor costs, save another healthy increase in productivity growth.
Sources: Econoday, U.S. DoC, CME, FRBSL