- Personal income fell 2.7% in August as unemployment benefits expired. This was a slightly bigger decline than the consensus estimate of -2.4%.
- Controlling for inflation and subtracting taxes, real disposable personal income fell 3.5% in August.
- Personal consumption rose by 1.0% in nominal terms and 0.7% after removing inflation– decelerating from a downwardly revised 1.1% in July (previously reported at 1.6%).
- By component, real spending on services rose 1.1%, durable goods spending was flat, while non-durable goods spending fell 0.3%.
- The personal saving rate continued to move lower, falling to 14.1% from 17.7% in July and a peak of 33.6% in April.
- The personal consumption price deflator was up 1.4% on a year-on-year basis in August, accelerating from 1.1% in July. Core PCE inflation (ex food & energy) also accelerated, hitting 1.6% (from 1.4%).
Key Implications
- The spending data continue to show a bifurcated recovery, though one in which the hare of the race – durable goods spending – is showing signs of fatigue, while the tortoise, services spending, is very gradually closing the gap. The frontloading of durable goods spending earlier in the year suggests more of this in store – and a pullback in the former will require services spending to drive the total forward.
- However, even the tortoise’s pace is slowing from its initial burst of speed in May and June. The decelerating trend will mean a radically different economic growth rate in the fourth quarter of this year from the near 30% annualized pace in the third.
- The sharp pullback in income, on the other hand, was entirely due to the pullback in unemployment benefits, which fell by $687 billion (52%) in the month. Employee compensation continues to recover, though at a slowing pace. It was still 3.6% below its pre-crisis peak in August.
- Hopes are high for another fiscal package of income supports for the unemployed and stories of a potential deal between House Democrats and the Administration, including unemployment benefits at $400 a week retroactive to September and lasting through January of next year. It’s unclear whether Senate Republicans will go for the deal, but if they do it would represent a pleasant upside risk to the outlook in early 2021.
