Spending Growth Tops Income Expectations In July

Personal income rose $42.3 billion in July but consumer spending increased $46.0 billion, the ""Commerce Department"":http://www.commerce.gov/ reported Thursday. The increase in income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô 0.3 percent ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô topped expectations of a 0.3 percent boost, and the 0.04 percent increase in spending also met economist expectations.

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The Mr. Micawber-like report (""Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery,"" per Charles Dickens) meant personal savings dropped in July.

Disposable personal income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô essentially after-tax income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose $39.9 billion in July. Personal savings fell $9.9 billion.

Personal savings as a percentage of disposable (after tax) income fell to 4.2 percent in July from 4.3 percent in June. With continuing low interest rates, personal interest payments (non-mortgage interest) fell to $169.3 billion in June from $173.0 billion in May.

The originally reported $61.8 billion increase in personal income for June was revised downward to $46.1 billion and the originally reported $1.3 billion drop

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in spending was revised upward to show June spending flat to May.

Wages and salaries grew just $16.3 billion in July, down from the $29.2 billion increase in June. Transfer payments ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô predominantly unemployment insurance, Social Security and Medicare ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose $10.3 billion in July after increasing $3.8 billion in June.

Medicare payments rose $6.9 billion while Social Security payments fell $2.5 billion and unemployment insurance benefits dropped $0.2 billion.

The drop in Social Security payments resulted from the calendar: July 1 fell on a Sunday, accelerating July payments into June.

The drop in unemployment insurance payments was the seventh consecutive monthly decline ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô reflecting congressional mandated reductions.

The increase in personal consumption was split between goods (up $26.0 billion) and services (up $20.1 billion).

The increased spending on goods though was heavily weighted to non-durable goods suggesting consumers might be reluctant to spend on higher ticket items which are often financed through borrowing.

Personal interest payments ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô non-mortgage interest payments by households ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose $3.5 billion in July, the first month-month increase since March.

The Personal Consumption Expenditure (PCE) Price Index ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô often considered the Federal Reserve's favored measure of inflation ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô was unchanged in July and dropped to 1.3 percent above its year ago level. In June, the Index the year-year increase was 1.5 percent.

The ""core"" PCE Index ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô excluding food and energy ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô was also unchanged in July and was up 1.6 percent in the last year, compared with a 1.8 percent year-year increase in June.