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Economy in Brief

U.S. Personal Spending Firms As Consumers Dip Into Savings
by Tom Moeller August 30, 2010

One way or another, U.S. consumers know how to do what they're paid to do. Personal consumption during July increased a firm 0.4% following an unrevised dip during June. The increase beat Consensus expectations for a 0.3% gain. Though the monthly gain in constant dollars amounted to a lesser 0.2% with the rise in gasoline prices, real spending advanced at a 2.1% annual growth rate during the last three months. Most of that firmness owes to gains in services spending, notably housing & utilities (7.1%), "other" (4.3%), transportation (3.3%) and health care (2.7%). For goods, real spending growth eased due to declines in spending on home furnishings (-3.3%) and apparel (-9.9%).

On the income side of the ledger growth remained moderate, posting a 0.2% July increase following little-change during June. The gain fell short of expectations for a 0.3% rise. Allowing for taxes and prices, nominal disposable income rose 0.2% last month and 3.0% y/y. Wage and salary growth was an improved, though modest 1.7% y/y, and proprietors' income rose 4.4%. Income from stocks & bonds was, however, little-changed. In real terms, disposable personal income rose 0.2% (3.0% y/y).

The personal savings rate fell to 5.9% due to this moderate-spending but modest-income combination, though the decline was slight from the 2Q rate of 6.1%. The latest equals the level for all of last year and remains up from the 1.8% low during the fall of 2007.

The PCE chain price index gained a moderate 0.2% though it beat expectations for a 0.1% uptick. A 4.4% increase (7.7% y/y) in gasoline prices reversed all of the June decline. Food & beverage prices were unchanged (0.7% y/y) but that's up from declines early this year. The core PCE price deflator ticked up just 0.1% and y/y growth fell to 1.4%, near its weakest since the 1960s.

The personal income & consumption figures are available in Haver's USECON and USNA databases

The Fed's Exit Strategy for Monetary Policy from the Federal Reserve Bank of San Francisco can be found here.

Disposition of Personal Income (%) July June May Y/Y 2009 2008 2007
Personal Income 0.2 -0.0 0.3 3.0 -1.7 4.0 5.7
   Wage & Salaries 0.3 -0.1 0.4 1.7 -4.3 2.1 5.8
Disposable Personal Income 0.2 -0.0 0.3 3.0 0.7 5.1 5.1
Personal Consumption Expenditures 0.4 -0.0 0.1 3.4 -1.0 3.0 5.2
Saving Rate 5.9 6.2 6.1 6.1(July '09) 5.9 4.1 2.1
PCE Chain Price Index 0.2 -0.1 -0.1 1.5 0.2 3.3 2.7
  Less food & energy 0.1 0.0 0.1 1.4 1.5 2.3 2.4
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