Personal income grew 0.2% month-on-month (m/m) in August, down from July’s 0.3% gain and below market expectations (0.4%).
Accounting for inflation and taxes, real personal disposable income grew a modest 0.1% for a third consecutive month.
Personal consumption expenditures grew 0.2% m/m in August. This was lower than the 0.5% recorded in July, and below market expectations (0.3%). Spending in real terms rose 0.1% m/m – much lower than the 0.4% gain recorded in July. Real spending was largely a result of increases in services outlays (0.2%), as goods spending was flat.
On inflation, the Fed’s preferred inflation metric, the core PCE price deflator, rose 0.1% m/m, weaker than a 0.2% in the prior month. Thanks to base effects core PCE inflation rose from 2.6% to 2.7%. While the annual reading was in line with market expectations (2.7%), the monthly number came in marginally lower than expected (0.2%).
The personal savings rate declined to 4.8% in August from 4.9% in July (previously 2.9%).
Key Implications
Yesterday’s release of the comprehensive annual GDP update revealed that the savings rate and income growth for the first half of the year were both stronger than previously reported. Thus it appears consumers had more gas in the tank to facilitate spending. Nonetheless, today’s data suggests that they may be taking their foot off the pedal. Consumer spending is expected to remain subdued as the labor market continues to cool, though a greater savings buffer than previously thought could help to temper the slowdown.
On the inflation front, the Fed’s preferred core measure continues to head in the right direction, even though base effects are boosting the yearly pace. Given that inflation continues to remain contained, the Fed will be paying even keener attention to labor market developments, with September payrolls data released next Friday as they calibrate further policy action.
