Personal income and consumer spending rose in August

Personal income rose 0.5% in August, a stronger than expected gain. Consumer spending rose 0.4% in August and by 0.2% when adjusted for inflation.

Overall PCE prices rose 0.2% in August and core PCE prices increased 0.1%. As a result, the year-over-year headline and core PCE inflation rates were unchanged at 1.5% and 1.4%, respectively, in August.


The consumer continues to edge forward with moderately solid gains in income and spending in August. Consumer spending looks to be on a path of 2% or so real growth in the quarter, which we think leaves intact our projection of around 2¾% for real GDP growth for the quarter (on a further robust gain in business equipment spending, a small addition from inventories, and a sharp swing in the trade contribution to growth—although we only have July data for these last two factors). The savings rate appears to have flattened out at around 6%, which was our estimate of the desired savings rate of households given the current environment for asset prices, which should result in spending growing in line with income. The inflation data show no further disinflation in August, with the overall PCE price data rising at 1½% and the core rate holding steady at 1.4%. Some at the Fed think this inflation rate is too low and are pushing for more QE. We note that gold is hitting new highs today as the New York Fed President Bill Dudley says that inflation is unacceptably low.


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