Those expecting the relatively strong second-quarter consumer spending to continue in the third quarter may wish to reconsider.
It’s hard to detect much life in any part of the personal income & outlays report. Income couldn’t muster a gain in June, coming in unchanged with May revised 1 tenth lower to a 0.3 percent gain. Consumer spending did make the plus column but with only a 0.1 percent gain though May gets a 1 tenth upgrade to 0.2 percent. Price data are flat, unchanged in the month with the core rate (less food and energy) up 0.1 percent for a second weak month in a row. Year-on-year, overall prices are up only 1.4 percent with the core little better at 1.5 percent.
The weakness in income, at least for June, isn’t due to weakness in wages & salaries which rose 0.4 percent following, however, only a 0.1 percent gain in May. Proprietor income fell in the month with interest income flat and rental income and transfer receipts up. The breakdown for spending shows a second straight 0.3 percent gain for the largest component which is services but 0.4 percent declines for both durable and non-durable goods.
What little spending did appear in June may have come from savings, at least slightly, as the savings rate fell 1 tenth to a thin 3.8 percent rate. There are plenty of jobs in the economy but wage growth is sub par and with it both consumer spending and inflation are flat. These results do not point to much consumer momentum going into the third quarter.
Income, Outlays, Inflation
Consumers like falling prices but the Fed sure doesn’t. Expect to hear more “transitory” comments from Janet Yellen.
The third quarter is not exactly getting off on the right foot. Today’s construction spending report was also very anemic. For details, please see Construction Spending in June Collapses: Negative Second Quarter GDP Revisions Coming Up?
We are starting to get strong hints already that the GDP bounce in the second quarter will be short lived.
Mike “Mish” Shedlock