Personal Income and Outlays show weak trends

July Personal Consumption Expenditure and Personal Income were both in line with expectations. Although June growth was revised up a tiny amount the trends of the last several months were unbroken. Nominal Expenditure has accelerated to 3.8% YoY but only financed by a lower savings rate due Personal Income running at a 3.2% trend. Perhaps confidence amongst consumers has risen, but that does not seem to be the case looking at surveys.

While Nominal Disposable Income is running a bit closer to Nominal Personal Expenditure, Disposable Income per capita growth, is in line with nominal weekly wages at an ugly 2.8% YoY growth rate – providing little comfort to the average household.

All these sub-4% growth rates have been exceeded several times since 2009 but never seemed to gain real traction thanks to constant Fed fear-mongering about higher Core PCE Inflation just around the corner. Of course, during the Great Moderation these rates of growth were consistently above 5% with no take off in Core PCE Inflation: the US just had good RGDP growth in those days thanks to healthy, on-trend NGDP growth.

Core PCE Inflation in July 2016 remained flat YoY at 1.6%. The hawks didn’t even try to manufacture a story as their usual scare tactic of annualizing the last three months resulted in just 1.3% Core PCE Inflation, i.e. it is trending lower. Headline PCE Inflation actually fell back to just 0.8%.

The tame inflation figures lowered the chances of a Fed rate rise in September back to 20% from 30% post-Fischer¬†Friday. The figures didn’t alter the slope of the yield curve as the market still fears a December rate rise (put at 50/50) and fears the Fed’s 2017-2018 central projections for rates.


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