June 2017 Income and Outlays
Submitted by Atlas Indicators Investment Advisors on August 7th, 2017Data from the Bureau of Economic Analysis (BEA) on Income and Outlays was short on good news for June 2017. As the first half of this year came to a close, there was no change to the national income figure versus a month earlier. As one might presume, this stunted consumption’s growth in the period, rising just 0.1 percent. Of course if incomes are not growing and spending increases, it comes at the expense of savings which declined 0.1 percentage point to an even thinner rate of just 3.8 percent.
Due to rounding, the headline released by the BEA showed no change in the income level, but the figure actually declined $3.5 billion. After taxes were paid, the disposable personal income (DPI) level fell even further, dropping $4.2 billion. When adjusted for inflation, real-DPI decreased enough to show up statistically, falling 0.1 percent. In the past year, real-DPI increased just 1.2 percent, decelerating from 1.4 percent in May.
Spending was mixed in the period. Consumers purchased fewer goods as money spent on both durable and nondurable wares declined 0.4 percent. However, there was an uptick of 0.3 percent in the amount of services purchased. Since services are a larger segment of the economy, its uptick was enough to produce the earlier mentioned increase of 0.1 percent for expenditures.
Also included in this indicator is data on inflation. Here we see the personal consumption expenditure (PCE) price index remain unchanged for a second consecutive month after May’s tally was upwardly revised to neutral (originally -0.1 percent). Versus a year ago, this headline PCE price index has increased just 1.4 percent. A subset of this price measure which removes food and energy, leaving the core-PCE price index, is the Federal Reserve’s favorite inflation gauge. Here we see an uptick of only 0.1 percent in June and a change of merely 1.5 percent compared to a year earlier, remaining well below the central bank’s target of 2.0 percent.
Personal consumption, the largest segment of the American economy, turned out to be rather lackluster in June, and gains in inflation continued to elude the Federal Reserve. Our economy is driven by consumers, but something is holding them back despite a seemingly robust labor market. One might suggest demographic challenges are exerting greater downward pressures on the economy than the positive hiring trend is able to alleviate. If this is the case, slow growth is likely to remain for the foreseeable future. Additionally, the Federal Reserve is in the process of “normalizing” interest rates and wants to do the same to its balance sheet, but inflation data are not indicating they ought to continue their course if they want to reach their explicit target of 2.0 percent inflation. It is plausible that this dearth of upward price pressure could keep the bank from making monetary policy any tighter for at least the rest of this year.