Personal Income and Spending Both Rose More Than Expected in July

Personal income rose +.5% MoM (consensus +.3%), and personal spending rose +.4% MoM (consensus +.3%) in July. The slower increase in spending versus incomes helped push the savings rate up to +.7%.

The +.5% MoM increase in income was the largest gain in four months. Disposable income (after taxes) rose +.6% MoM, an increase from the +.4% MoM gain in June.

Spending was also revised higher for June, to +.2% MoM from +.1% originally reported. By category, spending on durable goods rose +.5% MoM, non-durables rose +.4% MoM, and services (60% of total spending) rose +.2% MoM.

Total inflation held steady at 2.1% YoY based on the PCE deflator. But, core inflation rose less than expected, increasing +.1% MoM (consensus +.2%), and holding steady at +1.9% YoY (consensus +2% YoY). Core PCE, which excludes food and energy costs, is the Fed's preferred inflation gauge, so they will be happy to see the annual increase remaining below their presumed upper band of 2% annual growth. After adjusting for inflation, spending rose +.3% MoM in July after remaining unchanged the prior month. The peak in total inflation this year was at 2.5% YoY in March. Core PCE peaked a month earlier, in February, also at +2.5% YoY.

Over the past year, personal income has risen +6.6% YoY, with disposable income rising +6% YoY. Personal spending has risen a more moderate +4.7% YoY, but has only risen +2.5% YoY when adjusted for inflation.

Overall this is a good report for the Fed. Easing inflation and steady consumer spending and income growth.