U.S. Consumer Spending Posts Firm Rise As Income Improves

Personal consumption expenditures increased 0.5% during August (4.1% y/y) following an unchanged July reading, revised from -0.1%. The rise matched the strongest gain since a 0.8% March increase. A 0.4% increase had been expected in the Action Economics Forecast Survey. When adjusted for price inflation, spending increased 0.5% (-2.6% y/y) following no change during July. Purchases of durable goods were quite strong. Real spending on motor vehicles led last month's spending with a 3.9% increase (10.2% y/y). That was accompanied by a 1.2% rise (6.1% y/y) in real consumption of home furnishings & appliances. Constant dollar spending on recreational vehicles gained 1.0% (9.2% y/y). Apparel spending rose 0.4% (2.0% y/y) in real terms and gasoline purchases improved 0.6% (0.8% y/y). Services spending rose 0.4% (1.8% y/y) in real terms as health care spending was unchanged (2.1% y/y) but recreation services jumped 2.0% (-1.1% y/y).   

All this spending caused the personal saving rate to dip m/m to 5.4%, but that still was nearly the highest level since the end of 2012. The amount of personal saving declined 3.4% (+6.4% y/y) after a 3.0% July increase.

Personal income rose a modest 0.3% (4.3% y/y) following an unrevised 0.2% increase. The increase matched Consensus expectations. Wages & salaries rose 0.4% (5.1% y/y), the firmest gain in three months. Rental income jumped 1.0% (7.6% y/y) after a 0.8% rise. Proprietors' income declined 0.6% (+3.1% y/y). Earnings from dividends rose 0.3% (2.7% y/y) but interest income slipped 0.2% (+0.9% y/y) for the second straight month. Transfer payments improved 0.7% (5.2% y/y) following a 0.4% rise. The gain was led by a 2.0% jump (12.5% y/y) in Medicaid payments. Social security receipts increased 0.5% (4.3% y/y) but unemployment insurance benefits were unchanged (-35.7% y/y). Disposable personal income gained 0.3% (4.2% y/y) after a 0.2% improvement. In real terms, disposable income moved 0.3% higher (2.7% y/y), improving on a 0.1% uptick.

The chain price index was virtually unchanged in August (1.5% y/y) after a 0.1% uptick. Energy prices declined 2.7% (0.0% y/y) but food prices gained 0.3% (2.2% y/y) for a second straight month. Durable goods prices declined 0.2% (-2.2% y/y) while nondurable prices moved 0.6% lower (+0.8% y/y). Services prices increased 0.2% (2.3% y/y). Prices excluding food & energy edged 0.1% higher (1.5% y/y) for a second month.

The personal income & consumption figures are available in Haver's USECON and USNA databases. The consensus expectation figure is in the AS1REPNA database.

Pending sales of single-family homes jumped 3.3% (-2.1% y/y) during July, according the National Association of Realtors (NAR), following a little-revised 1.3% June decline. The increase was to the highest level since last August.

Home sales were strong through most of the country last month. In the Northeast, sales jumped 6.2% (8.3% y/y) while in the South they gained 4.2% (-1.0% y/y). In the West, home buying improved 4.0% but remained off 6.0% y/y. In the Midwest, sales slipped 0.4% (-6.4% y/y).

The pending home sales figures are analogous to the new home sales data from the Commerce Department. They measure home sales when the sales contract is signed, not at the time the sale is closed. In developing the model for the index, the NAR demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. The series dates back to 2001 and the data are available in Haver's PREALTOR database.

The National Association for Business Economics has released new forecasts for U.S. real economic activity. Expectations for 3.1% real GDP growth in 2015 following a 2.5% advance this year are unchanged. Quarterly growth is expected to hold steady at 3.1% next year. Forecasted personal consumption expenditures growth held at a moderate 2.9%, its quickest growth rate since 2006. Residential investment should continue to be the economy's strongest sector with an 11.2% increase after a lessened 3.8% rise this year. Growth in business investment in equipment & software is expected to remain firm at 4.0% while growth in spending on nonresidential structures should be roughly steady at 5.5%. The rate of inventory investment should diminish this year and next after a strong 2013 gain. Real net exports are expected to deteriorate slightly.

Forecasts for housing starts have been pared back slightly to 1.27 million in 2015 after 1.03 million during this year. Expected light vehicle sales held firm at 16.5 million after an expected 16.1 million this year. Forecasted average monthly gains in payroll employment have been raised slightly to 209,000 this year and next. The unemployment rate should average a lessened 5.9% next year after a downwardly revised estimate of 6.2% this year. The forecast for consumer price inflation remains low at 2.0% versus 1.8% projected for 2014.

The forecasted 3.75% interest rate on 10-year Treasury notes at the end of next year has been lowered slightly and compared to a downwardly revised 3.15% at the end of this year. The Fed is expected to raise rates in the third quarter of 2015. The forecasted 6.0% gains in corporate profits this year and next are little-changed. The Federal government budget deficit is expected to shrink to a lessened $475 billion in 2015, roughly one-third its $1.4 trillion peak in 2009.

The figures from the latest NABE report can be found in Haver's SURVEYS database.