June 2018 Income and Outlays

Americans made and spent more money in June 2018 than in the prior period according to the Bureau of Economic Analysis.  Their release on income and outlays show pay rose 0.4 percent to end the second quarter and has grown 4.9 percent in the past 12 months.  Outlay data added to the good news.  Consumers spent 0.4 percent more than a month earlier, and both May and April were upwardly revised.  May outlays were up 0.5 percent (originally 0.2 percent) and April surged 0.6 percent (originally 0.5 percent).

Personal income rose $71.1 billion in the period as all four major categories in pay rose.  Wages and salaries increased 0.4 percent or $31 billion.  Proprietors took in an additional $7.4 billion or 0.5 percent.  Rental income was $4.5 billion higher, an increase of 0.6 percent.  Lastly, personal receipts on assets (interest and dividend payments) tacked on an additional $19.6 billion or 0.7 percent.  After-tax pay rose $65.3 billion or 0.4 percent; categorized as disposable income, it can either be spent or saved. 

As is normally the case, most of the increase in disposable income was spent.  Personal consumption expenditures (PCE) were mixed however.  Spending on durable goods rose marginally while purchases of nondurable goods declined 0.1 percent.  Fortunately, consumption of services jumped 0.6 percent in the period. Unfortunately, interest payments are another item on which Americans are spending more.  This line item (measuring interest paid on nonmortgage debts) has been trending higher and is now 6.7 percent greater than as recently as January.

Disposable income not spent on goods, services, or debt makes up personal savings.  After hitting a recent peak of 7.4 percent in February of this year, it has been trending lower and is currently at 6.8 percent.

Also presented in this report are data on inflation, including the Federal Reserve’s preferred price proxy.  Headline inflation inched up 0.1 percent in June, while the year-over-year tally held steady at 2.2 percent.  Looking at the core-PCE price index (which removes food and energy), it also edged up 0.1 percent in the period and matched the previous year-over-year print of 1.9 percent.  It remains near the central bank’s explicit target of 2.0 percent. 

All told, this is a strong report for income and outlays.  Incomes are rising, and spending is moving ahead as well.  Consumers are our economy’s primary driver, and as this release demonstrates, they are continuing to improve in aggregate.  Simultaneously, the Federal Reserve is getting closer to their inflation trend target.  They have noted a willingness to let inflation overshoot their goal, so it seems unlikely that they will make drastic changes to their monetary policy’s trajectory, opting instead to allow the economy to keep pushing ahead while remaining measured in their tightening.  Currently, Atlas expects another quarter point upward bump in the Federal Funds rate toward the end of September.