July 2018 Personal Income and Outlays

Americans’ income and spending improved in July 2018 according to the latest data from the Bureau of Economic Analysis.  Their most recent release for Personal Income and Outlays show pay rising 0.3 percent in the period.  More importantly, after-tax pay rose 0.3 percent and consumption increased 0.4 percent. 

Income categories were mixed but biased higher.  Wages and salaries rose 0.4 percent in the period, and this largest segment has grown 1.0 percent year-to-date.  Rental income increased 0.7 percent in July, while receipts on assets gained 0.3 percent.  Barely budging, proprietors’ income was the lone decliner, dropping 0.02 percent.

Spending on non-durable goods and services led the outlays portion.  Consumer spent 0.4 percent more on wares expected to last less than three years.  Similarly, outlays for services also increased by 0.4 percent.  Durable goods spending suffered a modest setback of 0.2 percent.

Since outlays rose faster than income, the savings rate declined.  Despite the drop, July’s 6.8 percent savings rate is still higher than most of the periods during the previous economic expansion in America from late 2001 through nearly the end of 2007.

Price data were higher.  This report garners a lot of attention from the Federal Reserve for its information on inflation. Overall, the headline rate increased 0.1 percent in July and is up 2.3 percent year-over-year.  Excluding food and energy, core prices rose 0.2 percent and 2.0 percent during the month and year respectively. 

This release provided some welcomed news for the Federal Reserve.  They are meeting later this month and are expected to raise the overnight interest rate banks charge each other (the Fed Funds Rate).  However, they are likely worried about overtightening monetary policies since the current expansion is relatively old.  Fortunately, this iteration of incomes and outlays demonstrates an economy which is behaving quite spryly.  Incomes are growing, and inflation is picking up but not overly hot.  This combination gives the central bank room for more rate hikes in the near term without concerns about extinguishing the economy’s upward trend, ultimately giving policymakers more room for accommodation when the next inevitable downturn occurs.