Core inflation on the Fed’s preferred gauge was a touch warmer than expected last month, while a narrower measure of underlying services-sector price growth rose nearly 4% from the same month a year ago.
Those were the overarching takeaways from the government’s personal income and spending report for July. Wednesday’s marquee US macro release also confirmed the US consumer lost momentum at the beginning of Q3.
Core PCE prices rose an unrounded 0.246% last month from June, the BEA said. That was basically in line with estimates, although you could argue it’s on the high side if you’re the sort of person who cares about the hundredths and thousandths decimal place(s).
The readout was nearly double June’s MoM pace. On an annual basis, core PCE prices rose 3.3% in July, unchanged from the prior month’s YoY rate.
The core services excluding housing metric, so-called “supercore” inflation, rose 0.3% MoM and an uncomfortable 3.8% YoY. The headline PCE gauge rose a quicker-than-expected 0.2% from June and 3.7% YoY.
On the personal spending front, nominal outlays for goods and services rose 0.2%, slightly faster than expected, but real spending flatlined.
The unchanged print (technically a 0.00769% “advance”) came on the heels of back-to-back strong months. The slowdown was consistent with the message from a lackluster July retail sales report.
Real disposable personal income rose 0.4%, quicker than June’s pace and the saving rate moved up to 3%, the highest since March.
Do note: The saving rate’s still very (very) low in almost any historical context. There’s very little in the way of precedent, where that means outside of 2022 and the lead-up to the GFC, the saving rate is near record lows in data back to 1959.
As the figure above, which gives you some context for July’s “rebound,” reminds you, this comes as inflation-adjusted wage growth remains negative thanks to the war-driven surge in energy costs.
That dynamic’s likely beginning to weigh on consumption, certainly at the low-end of the income spectrum, even as record-high stock prices support spending in the upper-half of the “K.”
On balance, this release was as-expected. Again, the MoM core PCE price readout was dangerously close to rounding up, and the YoY pace of “supercore” inflation remains nearly 2ppt above target, but it’s all old news, and it won’t move the needle on Fed pricing for September.
The spending figures confirm what we already knew: The US consumer, “resilient” or not, got off to a slow start in Q3.
