In this morning’s data, Personal Income grew 0.4% in August, as expected and higher than the previous month. Personal Spending grew 0.4% in August, slightly lower than expected and moderately lower than the previous month. Real Personal Spending, which accounts for inflation, grew just 0.1% in August, which is significantly less than the 0.6% increase in July. Meanwhile, the personal savings rate as a percentage of disposable income was 3.9%, a slight decrease from previous levels.
Looking at inflation, the PCE Deflator grew 0.4% in August slightly less than expected and increased 3.5% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, increased just 0.1% in August, also less than expected. Core rates grew 3.9% on an annual basis, a decrease from the previous month.
Overall, both personal income and spending increased in August. Consumers are continuing to spend, but with real spending close to flat for the month it suggests a bit of cooling. Meanwhile, inflation measures were muted in August with core levels increasing just 0.1%. While the core PCE annual figure has fallen below 4%, it remains well above the Federal Reserve’s 2% target. How the Federal Reserve interprets these dynamics will be closely watched in the weeks ahead. Given this backdrop, how long consumers continue to spend and companies maintain their workforce levels will be key for the markets and economy in the coming months.
In all, the 10-year US Treasury yield ticks slightly lower following the data, and equity futures are higher as we head into the market open.
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