August 2017 Income and Outlays

Income and outlays improved in August 2017 according to the most recent data from the Bureau of Economic Analysis. Personal income rose 0.2 percent or $28.6 billion. Subtracting taxes, disposable personal income (DPI) increased $14.9 billion or 0.1 percent. Despite the perceived constraint of DPI, personal consumption expenditures increased $18.0 billion, also up 0.1 percent, causing the saving rate to stall at July's 3.6 percent number. Finally, inflation data remained subdued as the trend fell short of the Federal Reserve’s 2.0 percent stated target.

All four primary categories of income improved. Wages and salaries, the largest of the four, gained 0.04 percent. Proprietors’ income was 0.3 percent higher, and rental income jumped 0.7 percent. Finally, receipts on assets (dividends and interest) increased 0.2 percent.

Data were mixed on the spending side of the ledger. Americans consumed 0.3 percent more on both services as well as nondurable goods. However, 1.1 percent less was spent on durable items.

Inflation’s trend slowed in the period. The personal consumption price index increased 0.2 percent and matched July’s year-over-year tally of 1.4 percent. However, if food and energy are excluded (leaving the Federal Reserve’s favored price proxy), the core personal consumption price index matched the prior month’s increase of just 0.1 percent; the year-over-year trend for this “core” measure slowed to 1.3 percent from 1.4 percent in the prior period.

America’s economy is growing, but there are some flies in the ointment. First, Americans are saving very little as they struggle to maintain their spending levels despite subdued income growth. Second, purchases of durable goods tend to be expensive, so Americans usually increase their consumption of such wares when they are feeling confident; August’s contraction could be an early sign of waning optimism. Finally, even as the central bank embarks on tightening monetary policy, they are not meeting their inflation target and were even further off of the mark in the middle of the third quarter than a month earlier. Output is growing, but growth’s trajectory fell closer to the horizon in August.