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US July Personal Income Ticks Up, PCE Growth Slows

Personal income ticked up in July after two declines, reflecting a further increase in wages and salaries and small gains in proprietors’ income and rental income.

At the same time, consumer spending increased in each of the last three months, though at a progressively slower rate. Consumption is running well above the second quarter average, a positive sign for a third quarter recovery.

Personal income rose by 0.4% in July, well ahead of the 0.2% decline expected, after a 1.0% decline in June, the Commerce Department reported Friday.

The further increase in nonfarm payrolls and a small rebound in hourly earnings in July helped lift wages and salaries by 1.4% after a 2.1% June increase.

Current transfer receipts fell by $84.1 billion after a $479.2 billion decrease in June. The regular unemployment insurance category, which reflects that state portion of jobless benefits, fell by $105.5 billion in the month after rising in the previous four months through the crisis.

The “other” transfer payments category, which includes the government stimulus measures, rose by $4.9 billion after a $610.7 billion increase in June. The suspension of the enhanced unemployment program on July 31 should reduce this category in the coming months.

Proprietors’ income rose by $22.0 billion after a $100.1 billion increase in the previous month, reflecting further state reopenings. Rental income rose by $10.6 billion after declines in the previous three months, as the suspension of rent collections started to wind down.

Offsetting these gains, return on assets fell by $11.5 billion, with dividend income down sharply and interest income slightly despite low interest rates.

The savings rate fell to 17.8% in July from 19.2% in June, as consumer spending rose further. The high level of saving suggests consumers remain cautious.

On the spending side in July, current-dollar personal consumption expenditures rose by 1.9%, above the 1.5% gain expected, but a much smaller increase than in the previous two months. The data suggest that the sharp pent-up demand from the shutdown is starting to lose steam.

Goods PCE rose by 2.0% on an increase in motor vehicle sales (contrary to the monthly retail sales data), while services PCE rose by 1.9% on healthcare, services, and accommodations.

After adjustment for a 0.3% increase in the PCE price index, real PCE rose by 1.6% following a 5.7% increase in June. Real PCE was up 36.6% at an annual rate from the second quarter average after a 34.1% decline reported for the second quarter in Thursday’s GDP report.

While two months remain in the quarter and anything can happen, the July increase is a positive for a decent PCE rebound in the third quarter.

Core PCE prices also rose by 0.3% in July after a 0.3% increase in June. The year/year rate accelerated to 1.3% from 1.1% in June. The rate was 1.9% in February before the shutdowns.

Released later in the morning, the Chicago PMI fell slightly to a reading of 51.2 in August after rising to 51.9 in July, still indicating expansion. There were gains in new orders, production and employment, but a decline in inventories.

The other regional data already released have been mixed, though the flash Markit manufacturing estimate rose in the month, so the outlook for next week’s manufacturing ISM index is for another small increase. The Dallas Fed will release its monthly manufacturing data on Monday.

Finally, the Michigan Sentiment index for August was revised up to 74.1 from the 72.8 in the preliminary estimate, putting the reading ahead of the 72.5 index in July.

The current conditions and expectations readings were both revised higher, with a particularly stronger outlook. Michigan noted that the index has changed little over the period of pandemic.

Not surprisingly, the outlook remains positive compared with the worst of the shutdown, but Michigan cautioned that it could worsen if further fiscal stimulus is not enacted.

Kevin Kastner

kevin@macenews.com

www.macenews.com

Julie Ros

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