U.S. personal income growth rises above expectations in July, spending strengthens

U.S. personal income growth expanded in July, coming in above consensus expectations. Personal income growth rose 0.4 percent in the month, as compared with consensus expectations of 0.3 percent rise. Solid growth in wages and salaries for the second straight month aided in boosting top-line income. After removing taxes and price effects, real disposable personal income rose a more modest 0.2 percent sequentially.

Spending was up 0.3 percent, slightly weaker than consensus expectation of a 0.4 percent growth, but atop of an upward revision to the June figure. In real terms, personal spending was up 0.2 percent.

Meanwhile, consumer prices, after two months of negative or flat growth, rose 0.1 percent sequentially in July; however, it was unchanged from June’s 1.4 percent on a year-on-year basis. Core prices, stripping food and energy, rose 0.1 percent sequentially, but year-on-year core PCE inflation dropped slightly to 1.4 percent from 1.5 percent in June.

Even if both nominal disposable income and spending growth rose at the same rate in July, the saving rate dropped a bit to 3.5 percent from 3.6 percent in June.

July’s personal income and outlay report was widely optimistic on the outlook for the U.S. economy. Disposable income growth rebounded, while real spending grew at a 2.4 percent annualized rate. Overall, this implies that real consumer spending is set to grow at an above 3 percent annualized pace in the third quarter, adding strongly to the third quarter growth forecast of around 3 percent, stated TD Economics in a research report.

“It appears that inflation is taking longer to respond to economic growth and labor market slack than in past cycles, but overall we continue to believe that price pressures will eventually pick-up as the economic cycle continues to mature”, added TD Economics.

At 18:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 15.7495. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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