Announced this morning, Personal Income increased 1.1% in July, higher than expected, reflecting increases in government social benefits, such as the Child Tax Credit. Personal Spending increased 0.3% in July, less than expected and a large drop from the 1% increase the previous month. The PCE Deflator, a measure of inflation, increased 0.4% in July and has increased 4.2% on an annual basis. The Core PCE Deflator, which excludes food and energy prices, increased 0.3% in July and grew 3.6% on an annual basis, both as expected. Overall, an increase in income due to government assistance, coupled with a return to normal in spending even as the spread of the Delta variant of COVID-19 remains a concern. Meanwhile, inflation measures remain elevated amidst supply chain issues and the ongoing economic reopening process. The message and tone in today’s speech from Federal Reserve chair Jay Powell will be closely watched for possible changes to their policy, including how they will handle tapering asset purchases in the months ahead. In all, the 10-year yield tick lower following today’s data and equity futures are higher as we head into the market open.
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