Spending and Income Data

August 29th, 2014 9:06 am | by John Jansen |

Via Ginnadiy Goldberg at TDSecurities:

July personal income and spending disappointed market expectations. While an upward revision to last month’s personal income data left the 0.2% rise in July income largely in line with market expectations, spending activity disappointed, falling 0.1%. Markets were expecting a modest 0.2% gain in July despite weaker retail sales during the month, though the data suggests that consumer spending started Q3 on a somewhat slower note than previously anticipated. With core PCE rising 0.1% in July and remaining flat at 1.5% y/y, real spending declined by a more disappointing 0.2% following last month’s 0.2% gain. The disappointing spending print left the 3 month annualized pace of real spending activity softer at 1.3% from 2.5% last month, suggesting that market forecasts for Q3 GDP are likely to be nudged lower despite a solid handoff from the 4.2% growth rate in Q2.

While real disposable income growth also slowed to just 0.1% in July from 0.3% during the past several months, we expect the recovery in incomes to regain traction in the latter half of 2014. Strong labor market gains, consumer confidence at cycle highs, and increases in indicators of future wage growth should continue to support spending and investment activity in the coming months, helping GDP growth average 3% or higher in the latter half of the year. While the weaker start to Q3 consumer spending highlights some downside risk to our 3.0% Q3 GDP forecast, we expect growth to remain on a firmer trajectory as improving economic fundamentals continue to reassert themselves.
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