Personal income grew 0.2% month-on-month (m/m) in June, down from May’s 0.4% gain, and below market expectations (also 0.4%).
Accounting for inflation and taxes, real personal disposable income growth slowed in June, up 0.1% m/m, relative to a 0.3% gain in May (revised down from 0.5% previously).
Personal consumption expenditures also geared down slightly in June, up 0.3% m/m. This is lower than the revised 0.4% recorded in May (0.2% previously), but in line with market expectations. Spending in real terms rose 0.2% m/m – adding to the 0.4% rise recorded in May. The uptick in real spending reflected increases in both goods (0.2%) and services (0.2%) outlays.
On inflation, the Fed’s preferred inflation metric, the core PCE price deflator, ticked up on a monthly basis, but held steady annually. The measure rose from 0.1% to 0.2% month-over-month and remained at 2.6% annually. However, zeroing in on a 3-month annualized basis, core inflation has decelerated from its first quarter flare up, and now stands very close to the Fed’s target, at 2.3%.
The personal savings rate declined to 3.4% in June from a downwardly revised 3.5% in May (previously 3.9%).
Key Implications
Today’s report fills in some of the details of the headline numbers reported yesterday in the Q2 GDP advance release. Despite mounting challenges, such as slowing income growth and dwindling savings, the U.S. consumer powered ahead, closing out the second quarter with a decent showing. As such, real personal consumption expenditure growth was 2.3% annualized in 2024 Q2 (up from 1.5% in Q1). Most of the quarterly strength came from spending on goods (particularly durables), despite a solid showing from services spending in the final month of the quarter. Ultimately, with a decent handoff to Q3, consumers continue to display resilience, however continued cooling in the job market will put this to the test in the months ahead.
On the inflation front, despite a slight uptick in the monthly core figure, the recent cooling trend is likely to be interpreted favorably by the Federal Reserve. The trend is good news and it adds to the recent string of positive CPI inflation readings. With mounting evidence that both the economy and inflation are cooling, the prospect for a rate cut later this year continue to improve.
