Personal income rose and wages increase

Personal income rose 0.2% in July as although wages increased 0.3%, both nonfarm proprietors’ income and personal interest income declined 0.4%. Consumer spending rose 0.4% in July and by 0.2% when adjusted for inflation.

BOTTOM LINE

Once again personal income growth is only half of the equation.  The second half is employment.  While we are seeing personal income expanding and wages increasing it is mostly due to longer hours worked.  That is a moderately positive sign, because the expansion is not strong.  If it were strong, we would expect to see a pickup in hiring. 

The moderate trend in real PCE seen in the second quarter (2.0% annualized rate) has been maintained early in the third quarter. Longer hours worked are still generating decent wage income growth, however, entrepreneurial nonfarm proprietors’ income fell for the second consecutive month in July and has declined 2.7% at an annual rate over the last three months, which may point to a more difficult environment for small businesses. Core inflation trends are modest but do not point to deflation, in our view.

Source RDQ

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