Personal income in the United States was flat in June as a drop in incomes from personal dividends and interest following a big jump in May contributed to the weakest reading in seven months. Expectations were for incomes to rise by 0.4% month-on-month, following a downwardly revised 0.3% gain in May. Disposable income, when accounting for inflation, fell by 0.1% m/m after increasing by 0.5% in the previous month.
Personal spending grew in line with analysts’ estimates, rising by 0.1% m/m in June, and there was an upward revision from 0.1% to 0.2% in the prior month’s figure. This was the third consecutive month of a slowdown in consumption, and could potentially be a sign of softer consumer spending going into the third quarter.
Growth in the US economy rebounded from an annualized rate of 1.2% to 2.6% in the second quarter of the year on the back of stronger consumer spending and exports. Consumption accounts for around 70% of the US economy and any evidence of weaker spending could add to already declining expectations of a third rate hike by the Fed this year.
It wasn’t all gloom however in today’s data release. Wages and salaries picked up to 0.4% m/m in June after rising by just 0.1% in May. This could potentially indicate that personal incomes will bounce back in the coming months, supporting further increases in consumption.
In addition, the Fed’s preferred measures of inflation – the personal consumption expenditure (PCE) price index and the core PCE price index – were both revised higher in May. The PCE price index was revised from 1.4% to 1.5% in May, though it eased to 1.4% in June. The core measure, which excludes food and energy components, was also revised up from 1.4% to 1.5% and was unchanged in June, suggesting the decline in the index since February wasn’t as marked as initially estimated.
The US dollar held on to its modest rebound from a 6½-week low of 109.98 yen touched in Asian trading to around 110.50 yen in the European session after the PCE data came out. However, the greenback came under pressure to once again test the key 110 level after the release of the ISM manufacturing PMI.
The closely-watched index fell to 56.3 in July from 57.8 in the prior month, missing estimates of 56.5. Traders appeared to focus more on the ISM’s headline figure and less so on the ISM manufacturing prices sub-index which rose sharply to 62.0 from 55.0, as well as the ISM manufacturing employment index, which fell to 55.2 but this was above expectations of 55.1.
