Personal consumption is increasing

n July, personal income grew 0.2 percent, following no growth in June. The increase was driven by greater wage and salary income, which grew 0.3 percent in July following a 0.1 percent decline in June. The reduction in Census workers subtracted $1.4 billion at an annual rate from July payrolls, improvement from the $3.4 billion that was subtracted in June. From a year-prior, incomes were 3.0 percent higher.

Personal consumption rebounded a modest 0.4 percent in July after flat or negative growth since April. Consumers grew more cautious in the spring, with April’s 0.1 percent contraction ending seven consecutive months of increases. Spending on both durables and non-durables rose in July, following three months of declines.

The increase in consumption came at the expense of the savings rate which declined to 5.9 percent in July, following over 6.0 percent readings in May and June. Despite the decline, the savings rate is trending near a high level not seen since the early 1990s. Consumers continue to bolster their balance sheets as the transition from government-supported income growth to growth driven by the private sector proves to be slow but present.

As measured by the PCE deflator, prices increased 0.2 percent after three months of negative or flat growth. Readings suggest inflation remains well-contained. From a year prior, the PCE deflator was 1.5 percent higher, the second consecutive month below 2.0 percent. The core PCE deflator, which excludes energy and food prices, was up 0.1 percent over the month and was 1.4 percent higher from the year prior.