Personal income for Americans rose by 0.1 percent in July, according to a new report from the U.S. Department of Commerce. That was worse than the 0.3 percent gain analysts anticipated but still the 41st monthly increase in a row and largely held back by a decrease in interest income (falling rates). More importantly consumer spending, which accounts for the bulk of the U.S. economy (GDP), jumped by 0.6 percent last month. That exceeded analysts’ forecasts and was the best gain since April. Although a decline in the personal saving rate likely contributed to July’s spike in spending, incoming data continue to imply that trade war uncertainty and the prospects of cooler economic growth down the road have yet to meaningfully weigh on consumption.
Such concerns are likely being offset by the strong U.S. labor market, as recent sentiment data suggest Americans’ optimism about current and future employment conditions is currently hovering near a two-decade high. Altogether the solid consumption figures bode well for gross domestic product growth and only add to the latest uptick in positive economic data that provide little evidence of an impending recession. This environment could make continued, aggressive monetary policy easing harder for the Federal Reserve to justify, especially with both the headline and core readings on the PCE deflator, the FOMC’s preferred measures of household price changes, ticking higher in July. However, officials also appear willing to allow inflation to run above their 2 percent “target” until the potential headwinds from slower overseas growth and an unresolved trade war abate.
Sources: Econoday, U.S. DoC, Bloomberg, FRBSL