Core PCE Inflation – Personal Income Meets Estimates
The July Personal Income and Outlays report was released on Thursday. This is the most important report I follow because it tells us about income growth, inflation, and consumer spending.
The Fed follows core PCE inflation the closest which means if it accelerates, the Fed will need to raise rates quickly. The odds of that happening are slim to none. However, even with a slight increase in inflation, real wages have taken a hit.
Real wages have been strong on average this cycle, but not recently.
Month over month real disposable personal income was up 0.3% which met estimates and was down 0.1% from June.
On a year over year basis, growth fell about 7.5 basis points to 2.9%. As you can see from the chart below, growth has been around this level for over one year. It has been stagnant and positive, unlike real wage growth.
Core PCE Inflation – Strong Consumer Spending Growth
Real consumer spending growth in Q2 was lowered from 4% to 3.8%, but that’s still an amazing number.
This July report gives us our first taste of how strong Q3 consumption growth is going to be. If it maintains that high growth rate, 2018 GDP growth will be the fastest of this expansion.
Such an acceleration in growth must make investors claiming there will be a recession in late 2019 concerned about their forecast.
Real consumer spending growth was 0.4% month over month which met estimates and was the same as last month. On a year over year basis, it was up from 2.7% growth to 2.8% growth.
This is a continuation of the positive spending growth trend we have witnessed in the past few years. This goes along with the extremely positive results from the Conference Board survey which is a month ahead of this report.
Core PCE Inflation – Inflation Meets Estimates & Hits Fed Target
As I mentioned, the core PCE tells us the most about where Fed policy is headed in the near future.
