US Personal Income Drops as Stimulus Winds Down

US Personal income fell further in June after a large May decline, again reflecting the pullback from the stimulus surge in April. At the same time, consumer spending rose solidly in each of the last two months due to business re-openings, but not enough to offset the sharp April decline the Commerce Department reported Friday.

Annual revisions were incorporated into the data and into Thursday’s advance GDP report for the second quarter.

Personal income fell by 1.1% in June, slightly larger than the 1.0% decline expected, after a 4.4% drop in May.

Current transfer receipts fell by $0.5 trillion after a $1.2 trillion decrease in May, with the “other” transfer payments category, which includes all of government stimulus measures, the key factor. It fell by $0.6 trillion after a $2.0 trillion decrease in May. The two months combined have reversed most of the $2.9 trillion surge in April.

The regular unemployment insurance category, which reflects that state portion of jobless benefits, rose by $111 billion in the month after an $833 billion increase in May and a $399 billion gain in April. The weekly jobless claims data suggest that this category will continue to rise for several months.

The 4.8 million payrolls surge in June helped lift wages and salaries by 2.2% after a 2.6% May increase, even as the average workweek and average hourly earnings declined.

Proprietors’ income rose by $79.9 billion after a $30.0 billion rebound in the previous month, but return on assets fell by $36.5 billion, with both interest and dividend income down. Rental income declined by $3.3 billion after smaller declines in April and May, due in part to the moratorium on rental evictions in the stimulus legislation.

The savings rate fell to 19.0% in June from 24.2% in May, as consumer spending rose sharply. Still, the rate remains high and suggests consumers are cautious about their spending amid the uncertainty.

On the spending side in June, current-dollar personal consumption expenditures rose by 5.6%, exactly as expected. Retail sales posted another solid increase in June, adding to the gains seen in May. Goods PCE rose by 6.4% on motor vehicles, while services PCE rose by 5.2% on healthcare, food services, and accommodations.

After adjustment for a 0.4% increase in the PCE price index, real PCE rose by 5.2% after an 8.4% rebound in May. Real PCE growth fell by 34.6% in the second quarter at an annual rate after a 6.9% decline in the first quarter.

Core PCE prices rose by 0.2% in June, as expected, after a 0.2% gain in May. The year/year rate slowed to 0.9% from 1.0% in May. The rate was 1.9% in February before the shutdowns.

In other data released on Friday, the Employment Cost Index rose by 0.5% in the second quarter after a 0.8% increase in the previous quarter. Wages rose by 0.4% in the quarter, a sharp decline from the 0.9% rise in the previous quarter due to the reduction in employment. Benefits costs rose by 0.8% in the second quarter after a 0.4% increase in the first quarter due to increased health care costs.

Released later in the morning, the Chicago PMI surged to a reading of 51.9 in July from 36.6 in June, the strongest reading for the index since May 2019. There were solid improvements in new orders, production, and employment.

The other regional data already released have generally been positive, suggesting a further increase in the manufacturing ISM index to be published on Monday. That index rose to 52.6 from 43.1 in the previous month, the first reading above 50 since February.

Finally, the Michigan Sentiment index for July was revised down to 72.5 from the 73.2 preliminary estimate, keeping the reading well below the 78.1 index in June. The current conditions and expectations readings were both revised lower as concerns about the resurgence of COVID-19 cases offset positive economic data. Michigan said the data suggests consumers do not expect a quick end to the recession.

kevin@macenews.com

www.macenews.com

Colin Lambert

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