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Economy in Brief

U.S. Personal Spending Improves as Income Surges in July
by Tom Moeller  August 27, 2021

• Spending on goods declines but service outlays strengthen.

• Increase in core prices slips.

• Take-home earnings jump.

Personal consumption expenditures rose 0.3% (12.1% y/y) during July following a 1.1% June gain, revised from 1.0%. A 0.4% rise had been expected in the Action Economics Forecast Survey. Adjusted for price inflation, spending eased 0.1% (+7.6% y/y) after rising 0.5% in June. The increase in real outlays reflected a 0.6% rise (7.6% y/y) in real services outlays. Transportation service outlays surged 3.3% (21.2% y/y), strong for the fifth straight month. Recreation services outlays in constant dollars rose 1.2% (23.9% y/y), the sixth month of vigorous gains this year. Restaurant & hotel spending increased 1.5% (30.5% y/y) in real terms, also the sixth month of strong increase this year. Real health care outlays improved 0.3% (5.6% y/y) last month after rising 0.4% in each of the prior two months while housing & utilities spending eased 0.1% (+0.6% y/y) after a 0.3% June gain. Working 2.6% lower (+8.5% y/y) were real outlays on durable goods, the fourth consecutive monthly decline. Motor vehicle spending dropped 3.7% (+4.8% y/y) after declining in the prior two months. Spending on recreational goods & vehicles fell 2.4% (8.8% y/y) and have been falling since March. Furniture & appliance purchases were off 1.3% in real terms in July, off 7.2% in the last four months. Real nondurable goods spending weakened 0.9% (+7.1% y/y) after increasing 1.3% in June. Real clothing outlays weakened 1.9% (+19.9% y/y) after a 1.5% gain. Food & beverage sales weakened 1.2% (+2.1% y/y) after a 0.3% rise while real spending on gasoline gained 0.5% (11.8% y/y) after four months of strong increase.

The PCE chain price index rose 0.4% (4.2% y/y) in July following two months of 0.5% increase. The price index excluding food and energy rose 0.3% (3.6% y/y) following a 0.5% June gain, revised from 0.4%, and a 0.6% strengthening in May, revised from 0.5%. It was the largest y/y rise since 1991. Durable goods prices rose 0.3% (7.0% y/y) as motor vehicle prices (14.9% y/y) continued to strengthen. Nondurable costs increased 0.6% (4.4% y/y) for the second straight month, but clothing prices rose just 0.1% (3.9% y/y) after two months of strong increase. The services price index rose 0.4% (3.5% y/y) for the fourth straight month. Energy prices jumped 1.6% (23.6% y/y), about the same as in June. Food & beverage prices rose 0.6% (2.4% y/y) after a 0.8% June gain.

Personal income surged 1.1% (2.7% y/y) following a 0.2% June rise, revised from 0.1%. A 0.3% rise had been expected. Transfer payments rose 2.9% in July (-14.2% y/y) after three straight months of sharp decline. Wages & salaries shot up by 1.0% (10.1% y/y) after a 0.8% gain. It was the fifth straight month of marked growth. Proprietors' income eased 0.2% (+11.4% y/y) after six months of strong increase. Rental income improved 0.4% (1.1% y/y) after three months of decline. Earnings on assets rose 0.3% (3.5% y/y) as dividend income rose 0.4% (3.5% y/y) and interest income improved 0.3% (3.5% y/y). Disposable personal income strengthened 1.1% (0.5% y/y) last month after holding steady in June. Adjusted for price inflation, disposable income improved 0.7% (-3.5% y/y) after falling 0.5% in June.

The personal savings rate rebounded to 9.6% last month from 8.8% in June. The rate reached a record high of 33.8% in April of last year. The level of personal saving rose 9.7% m/m but has fallen by roughly one-half since last July.

Data from January through June were revised in the current release. The personal income and consumption figures are available in Haver's USECON database with detail in the USNA database. The Action Economics figures are in the AS1REPNA database.

Monetary Policy in the Time of Covid from Fed Chair Jerome H. Powell can be found here.

Personal Income & Outlays (%) Jul Jun May Jul Y/Y 2020 2019 2018+-
Personal Income 1.1 0.2 -2.1 2.7 6.5 4.1 5.1
  Wages & Salaries 1.0 0.8 0.7 10.1 1.3 4.8 5.0
Disposable Personal Income 1.1 -0.0 -2.7 0.5 7.5 3.8 5.6
Personal Consumption Expenditures 0.3 1.1 0.1 12.1 -2.6 3.7 5.1
Personal Saving Rate 9.6 8.8 9.8 18.7 (Jul '20) 16.6 7.6 7.6
PCE Chain Price Index 0.4 0.5 0.5 4.2 1.2 1.5 2.1
  Less Food & Energy 0.3 0.5 0.6 3.6 1.4 1.7 2.0
Real Disposable Income 0.7 -0.5 -3.2 -3.5 6.2 2.3 3.4
Real Personal Consumption Expenditures -0.1 0.5 -0.5 7.6 -3.8 2.2 2.9
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