One of the most useful reports to gauge the health of the US consumer, is the Bureau of Economic Analysis' (BEA) report on consumer personal income and spending changes for each month. It's a fascinating report, and more often than not leaves you scratching your head and asking questions...which is exactly what every investor should be doing.
In the month of June, (data is delayed by 2 months since it takes some time to compile data), the American consumer is continuing to spend, however the amount of money earned is not strong enough to justify this jump. For a second consecutive month, personal income increased by 0.2%, however spending rose by 0.4% month-over-month, also for the second month in a row. This gain in spending was most likely funded by consumers' savings accounts since the monthly savings rate dropped by 2 tenths to 5.3% in June. The chart below was created through Trading Economics and shows the monthly % relationship between income and spending over the past five years.
Ultimately, there is not much positive momentum in inflation data since the overall PCE (Personal Consumption Expenditures) index and the Core PCE index (which excludes food and energy) only increased by 0.1% for the month. On an annual basis, there was no improvement at all in this inflation index with the overall rate unchanged at +0.9% for headline index and +1.6% for the core index. This essentially implies that inflation is actually growing slightly slower than the rate of personal income increases - which is essentially good for sparking further spending and growth in the near-term.
Income, wages and salaries improved by one tenth for the month to a rate of +0.3%. Non-durable spending increased by 0.7% for the month, but higher oil prices was the culprit for this, not an increase in demand. Service spending (the opposite of durables) increased by a solid 0.5% for the second month in a row, while durables (goods) declined by 0.3% following another decline of 0.4% in May.
Both are essentially a reflection of weak vehicle sales (one of the largest and most expensive consumer goods). However, stronger sales are expected in July which should boost the spending on durables for the next monthly report.
TAKEAWAY: All and all this is a moderate report for income and spending habits in the United States. Spending won't continue to be a strong selling point for the economy if income levels do not also rise by an equal amount. This leaves us to conclude that consumers are using savings or credit cards to make purchases, rather than enjoying extra income. See, wasn't that fun?
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