Consumer spending and income continued to post moderate gains, according to this morning’s update for July from the US Bureau of Economic Analysis. Inflation remained tame in the report, with the personal consumption expenditures index higher by only 0.3% from a year earlier. Otherwise the numbers du jour reaffirm the view that a solid if modest US expansion was intact through last month.
Personal consumption expenditures (PCE) increased 0.3% in July vs. the previous month—unchanged from June’s pace. Meanwhile, disposable personal income (DPI) advanced 0.5% last month, the strongest gain since last November. More importantly, the year-over-year increases in PCE and DPI ticked higher through July, strengthening the outlook that the US expansion will endure.
An even stronger clue for expecting that consumer spending will continue to expand at a decent if unspectacular rate in the near-term future: private-sector wages grew 0.5% last month, the strongest rate since November. Is the encouraging comparison noise? Unlikely, or so it appears when we look at the annual pace. Private-sector wages jumped 4.6% over the year through July, slightly higher than the previous update and generally in line with the improved pace we’ve seen since May. With this critical source of household income still posting a steady pace of growth–well above consumption’s increase–it’s hard to paint a gloomy forecast for the consumer sector.
For macro bears looking for fresh data to confirm their prediction that the US economy is headed for trouble in the wake of recent turbulence in global financial and commodity markets, today’s update doesn’t provide much if any ammunition. “The consumer is pretty much chugging along,” Tom Simons, a Jefferies LLC economist tells Bloomberg. “It’s clearly encouraging to see the wage gain. We definitely need more of that to see a sustained acceleration in consumption.”
It’s anyone’s guess how the August profile of the economy will compare once a full data set is published. Based on what we know about the tailwind through July (and the early if preliminary clues for this month so far), projecting moderate growth remains a reasonable and perhaps compelling forecast. Accordingly, last week’s case for arguing that US recession risk remained low (based on the available data through last month) draws on additional support in today’s consumer spending and income numbers.