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Personal Income Up Big, Spending Down Last Month

Personal Income for July was +1.1% -- more than three times higher than the +0.3% expected by analysts.

This story originally appeared on Zacks

Friday, August 27, 2021

Market futures are up ahead of the opening bell, and they were in the green even before the latest reports on Personal Income and Consumer Spending were released. After taking a break Thursday in what is otherwise an up-week for the markets, the Dow is +81 points at this hour, the S&P 500 is +12 and the Nasdaq index is +49 points.

Personal Income for July was +1.1% — more than three times higher than the +0.3% expected by analysts. This follows a slight upward revision to June’s headline, +0.2%. Increased social benefits from the government and employee compensation (i.e. higher wages) were slightly augmented by a decrease in payments from the Pandemic Unemployment Assistance (PUA) program.

This has been a wildly volatile metric over the past couple years, with March’s +21.0 marking an all-time high and April’s -13.6 the all-time low. Averaged out over the past seven months, we arrive at a more normalized +1.3%. Working out a new equilibrium among income gains overall, this is the first time since late last year that we’ve seen two months in a row of increasing personal income.

Consumer Spending represents the other side of this balance, and a -0.1% headline for July is down from the +0.3% expected, and follows the upwardly revised +1.1% reported for June. The personal savings rate for July rose to +9.6% from +8.8% in June; it may be the threat of the Delta variant and subsequent lack of commercial business that accounts for this drop-off in spending last month.

The core Personal Consumption Expenditure (PCE) data — closely regarded by Fed presidents and others with the power to augment monetary policy — was in-line with the +0.3% expected, down from the upwardly revised +0.5% registered for June. The month-over-month deflator came in at +0.4%. Year over year, we see +4.2% on the deflator — the hottest read since late 1990 — and +3.6% year over year on core — the highest since February of ’91.

Advance Trade in Goods for July backed off the record-setting deficit we saw in June’s headline of -$91.2 billion. Last month’s read is -$86.4 billion, a month-over-month increase of +0.6%. U.S. trade deficit numbers have been wallowing in a range of record lows for the past four years or so; back at the nadir of the Great Recession in 2008, we still had not broached -$80 billion in our trade deficit.

All eyes will be on Fed Chair Jay Powell after the opening bell: his speech at the virtual Jackson Hole symposium this morning is anticipated to chart a new course in monetary policy now that inflation has been running hotter than the optimum 2% and employment and wage gains (as we see in the data this morning) are notably improving. Expectations are for a timeline on the tapering of asset repurchasing by the Fed.

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