Announced this morning, Personal Income increased 0.6% in June, slightly higher than expected and unchanged from the previous month’s revised figure. Personal Spending increased 1.1% in June, also slightly higher than expected and significantly higher than the previous month. However, Real Personal Spending, which accounts for inflation, was only up 0.1% for the month. The PCE Deflator remains elevated, increasing 6.8% on an annual basis, as expected but higher than the previous month. The Core PCE Deflator, which excludes food and energy prices, grew 4.8% on an annual basis slightly higher than expected and also higher than the previous month. Meanwhile, announced yesterday, the first reading of GDP for the second quarter indicated a contraction of -0.9%, which follows a -1.6% contraction in the first quarter.
Overall, a steady increase in income coupled with a rebound in spending in June, but accounting for inflation shows real spending was only slightly higher for the month as consumers grapple with higher prices. Inflationary measures remain stubbornly elevated even as economic growth has slowed in the first half of the year. It remains to be seen whether this slowdown will be deemed a recession, but inflation is still elevated and a primary concern of the Federal Reserve. The strength of the consumer, the labor market, and whether inflation wanes will be key for the speed and size of rate increases in the coming months.
In all, the 10-year US Treasury yield ticks higher and equity futures are also higher as we head into the market open.
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