Today’s personal spending and income update for July is a mixed bag. There’s no smoking gun here per se, but the numbers for July certainly don't look impressive either. The best you can say is that sluggish growth prevails and that the trend is holding up with enough strength to keep the economy out of the ditch. That’s old news, of course, but the recent changes for these crucial data sets leave minimal room for comfort should the economy suffer an unexpected shock. On the bright side, the economy overall still looks relatively resilient, or so it appears based on yesterday's substantial upward revision in Q2 GDP growth to 2.5% from 1.7%. Nonetheless, when you factor in today's news on consumer spending and income, it’s still hard to imagine that the US is poised to break free of its moderate-growth track any time soon.
That, at least, is the message in the latest monthly comparisons for disposable personal income [DPI] and personal consumption expenditures [PCE]. As the first chart shows, growth was slow last month on both counts. DPI increased 0.2% in July vs. the previous month, matching June’s weak pace, but PCE’s slim 0.1% rise was the slowest since April’s 0.2% decline.
The annual trend looks better, with both DPI and PCE advancing at rates that are in line with recent updates for the year-over-year comparisons. But here too the growth rates look sluggish. Fortunately, there are no signs of deceleration in the annual comparisons through July.
A more worrisome issue is the decline in private sector wages for July, which retreated 0.3% on a monthly basis. That’s the first round of monthly red ink since January, and it suggests that wage growth remains under pressure. That’s not particularly surprising, given the relatively low inflation rate these days. But it’s hard to overlook the potential for trouble that stagnant wages present for consumer spending.
Perhaps July’s fall in private wages was noise. That’s still a reasonable assumption when we look at the year-over-year change, which continues to hold up with a 4.2% gain in July vs. a year ago. That’s modest, although it’s up a bit from the pace in the spring and the trend looks steady.
Overall, today’s spending and income numbers send a mildly troubling sign, albeit one that could reverse if the numbers from elsewhere in the economy continue to trend positive. In particular, if private payrolls continue rising at the ~2% annual rate that’s prevailed recently (see July's update, for instance), there’s reason to think that we’ll see better comparisons for spending and income in the months ahead. Yesterday’s upbeat news on jobless claims implies that next week’s August payrolls report (scheduled for release on September 6) will continue to reflect an economy that’s minting new jobs at a decent clip. Nothing less will suffice to counter the weak trend of late with spending and income.