Friday, August 29, 2014

Personal Consumption Dropped in July

Personal consumption declined 0.1% in July, the first monthly decline since January, which was due to the cold weather. Personal income grew a modest 0.2%, the slowest increase this year.

Wage growth grew 0.2% and disposable income improved a slight 0.1%. Real personal income dropped 0.2% in July, the only decline all year. Dividend income, usually the driver of income growth, slowed considerably. Real personal income grew a modest 0.1%.

The savings rate increased to 5.7 months, as both consumption declined and income increased.

Inflation remained tame; the PCE deflator rose 0.1% in July and was 1.6% above year-ago levels. This was below the 2.0% target of the Federal Reserve.

The Federal Reserve noted this past week that, “the likelihood of inflation running persistently below two percent has diminished somewhat.” However, Janet Yellen said last week that, “If progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated . . . then than the Committee currently expects and could be more rapid thereafter.” However, she also noted that rates could raise later than anticipated if the data disappoints.

Read the BEA release.

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