US: Income and spending up in July, inflation remains tame - Wells Fargo

Analysts from Wells Fargo, explained that today’s report on Personal Income and Spending from July showed broad based gains and that inflation remains tame. 

Key Quotes: 

“Personal income surged 0.4 percent in July, besting consensus estimates and signaling stronger momentum going into the second half of the year after June’s flat reading cast some doubt. The disappointing print in June largely resulted from a payback for May’s surge in personal income from assets, which overshadowed a strong 0.5 percent gain from wages and
salaries in June. Personal income from assets recovered in today’s report, up a solid 0.6 percent in July, while wages and salaries growth came in at 0.5 percent again in July. This has benefitted consumers’ pocketbooks, as disposable income rose 0.3 percent in July.”

“Personal spending was also up solidly in July, though the 0.3 percent gain was slightly below consensus estimates of 0.4 percent. Spending was up a stronger-than-first-reported 0.2 percent in June, echoing yesterday’s upward revision to personal consumption in the second look at Q2 GDP.”

“We knew that the disappointing report in June was largely the result of one-off factors, and yesterday’s second look at GDP—which showed a stronger consumer helping boost GDP to 3 percent in the second quarter— suggested the consumer was in solid shape at the start of H2. Still, today’s strong personal income and spending report provides reassuring evidence that momentum continued into the second half of the year.”

“Both core and headline PCE deflators rose 0.1 percent on the month, as expected. The gap between headline and core PCE growth has closed as the effects of the decline in energy prices phase out of the year-to-year calculations. Core PCE inflation is now up just 1.4 percent from last year, which is the furthest it has been from the Fed’s target since December 2015.
Historically, PCE data in the second half of the year tends to be revised upward, and this residual seasonality in the government data is no secret to the FOMC.”