U.S. Income, Spending Gains Wiped Out by Inflation in June

Inflation is taking its toll on income and spending growth. Nominal personal income and personal consumption expenditures each posted solid, slightly larger-than-expected gains in June. But these gains were essentially wiped out by a larger-than-expected increase in prices. Nominal personal income increased 0.6% m/m (5.7% y/y) in June on top of an upwardly revised 0.6% monthly rise in May (originally 0.5% m/m). The Action Economics Forecast Survey had expected a 0.5% monthly increase. Personal consumption expenditures jumped up a larger-than-expected 1.1% m/m (8.4% y/y), their largest monthly gain since March, after a tepid 0.3% m/m increase in May (revised up from 0.2%). The Action Economics Forecast Survey had looked for a 0.9% monthly rise.

However, the inflation figures, also included in this report, served to significantly dampen the nominal increases. The PCE price index rose a larger-than-expected 1.0% m/m (6.8% y/y) in June following a 0.6% m/m increase in May. Expectations were for a 0.9% m/m rise. The June monthly reading was the largest since September 2005 and the annual increase was the largest since January 1982. After adjusting for inflation, real personal income fell 0.3% m/m, its first decline in three months and real PCE edged up just 0.1% m/m following a 0.3% monthly decline in May (revised up from -0.4%).

The rise in the headline PCE price index was led by strong gains in food and energy prices. Food prices jumped up 1.0% m/m in June, their fifth consecutive monthly increase of 1% or more. Energy prices rose 7.5% m/m in June following a 4.0% monthly gain in May. Still, even when these two volatile price series are excluded, the core PCE price index increased 0.6% m/m (4.8% y/y), the largest monthly gain since April 2021, after a 0.3% m/m increase in May. Expectations were for a 0.5% monthly gain.

Goods prices rose 1.5% m/m (10.4% y/y) in June, led by a 2.0% m/m jump in prices of nondurable goods. Services prices rose 0.6% m/m (4.9% y/y). Of some concern going forward is the broadening of inflation to areas where it may be more persistent. For example, the price of housing rose 0.7% m/m (5.5% y/y) in June, the largest monthly gain since June 1990. Housing prices comprise 15% of the headline PCE price index and 17% of the core index.

The June rise in nominal personal income was relatively widespread. Wages and salaries increased 0.5% m/m (10.3% y/y). Proprietors' income jumped up 1.4% m/m (5.0% y/y). Rental income gained 2.5% m/m (13.5% y/y). Income from assets rose 0.6% (4.3% y/y). By contrast, government social benefits were unchanged (-4.3% y/y). Disposable income gained 0.7% m/m (3.3% y/y) in June. But after adjusting for price changes, it fell 0.3% m/m (-3.2% y/y).

The June rise in nominal spending reflected a 1.6% m/m (7.1% y/y) rise in spending on goods. Sales of motor vehicles rebounded, rising 2.5% in June, but this fell short of reversing the 5.2% monthly decline in May. Nominal gasoline sales, clearly boost by meaningful price increases, jumped up 10.2% m/m in June. Purchases of services increased 0.8% m/m (9.2% y/y), the same monthly increase as in May. Spending on transportations services was up 1.4% m/m while spending on healthcare rose 1.2% m/m.

With nominal personal spending rising more than nominal personal income, the personal saving rate fell to 5.1% in June from 5.5% in May (revised up from 5.4%). The level of personal savings has been falling over the past year or so as households have been spending the funds they had accumulated from the various federal government pandemic relief programs.

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.