Major Revision to Saving Rate Paints a Different Picture for Consumers
• U.S. Nominal Personal Income increased by 0.4 percent in June.
• After inflation and taxes, Real Disposable Income was up by 0.3 percent.
• Real Consumer Spending increased by 0.3 percent in June.
• The Personal Consumption Expenditure Price Index gained 0.1 percent in June.
• Consumer Confidence dipped in June, but remained in its recent high range.
• The Case-Shiller U.S. National House Price Index was up 6.4 percent in May, over the prior year.
• The Employment Cost Index increased by 0.6 percent over the second quarter.
The June income and spending data was already incorporated in the Q2 GDP report, but today we can see the monthly detail. As part of the revision to the GDP data that was released with the initial estimate of Q2 GDP, U.S. income and spending data has also been revised. With the revision to income and spending data we see a major revision to the personal saving rate, which changes the story about U.S. consumers. Prior to the recent GDP revision, the personal saving rate was shown to be steadily declining through 2015 and 2016, to near 2 percent by mid-2018. That trend implied that consumers generally were starting to get over extended, and would have to rely increasingly on credit to support spending. The pre-revision trend also looked alarmingly like the dip to a minimal saving rate that we saw prior to the Great Recession. What we see now instead is a fairly flat saving rate, hovering around 7 percent since 2013. The June data shows a saving rate of 6.8 percent. This implies that consumers are not over-extended, and they can keep spending without setting up a debt overhang-correction cycle. This is supportive of an ongoing economic expansion.
Wages and salaries increased by 0.4 percent in June. Dividend income was strong, gaining 1.2 percent for the second consecutive month. After adjusting for inflation and taxes, real disposable income was up by 0.3 percent, the strongest gain since last March. Inflation was sedate, with the Personal Consumption Expenditure (PCE) Price Index up by just 0.1 percent. Real consumer spending increased by 0.3 percent in June, as it did in May.
U.S. consumer confidence fell in June according to the Conference Board. The series remains at a cyclical high, above where it was in the mid-2000s, but still below the high from the late 1990s.
The Case-Shiller U.S. National House Price Index was up by 0.4 percent for the month in May, gaining 6.4 percent over the previous 12 months. Most of the 20 cities tracked showed monthly price increases. However, Detroit house prices eased by 0.2 percent in May, and New York slipped by 0.3 percent. Western cities still show stronger gains. Seattle topped the 20-city list, increasing by 1.4 percent in May. Seattle, San Francisco and Las Vegas are all showing low double-digit gains over the last year.
The Employment Cost Index was up a moderate 0.6 percent over the second quarter. Civilian wages were up by 2.8 percent over the year ending in June. Benefit costs were up by 2.9 percent over the year. Stronger productivity growth in Q2 will help employers absorb the added costs without pushing up their prices (broadly speaking).
We expect the Federal Reserve to keep interest rates unchanged at the conclusion of the Federal Open Market Committee meeting tomorrow.
Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is down to 2.96 percent. NYMEX crude is down to $68.61/barrel. Natural gas futures are up to $2.83/mmbtu.
For a PDF version of this report, click here: June2018Income&Spending,ConsumerConfidence,MayHousePrices
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