U.S. personal income rises slightly below expectations in July, consumer spending to grow strongly in H2 2018

U.S. personal income rose slightly below market expectations in July. On a sequential basis, personal income rose 0.3 percent. Adjusted for inflation and removing taxes, real disposable income rose 0.2 percent in the month. Personal spending was up 0.4 percent in nominal consistent with the market expectations. In real terms, spending was up 0.2 percent. It also rose in services and goods by 0.2 percent, adding to the gain. Within real goods, the gain was driven by nondurables that rose 0.6 percent sequentially, while durables pulled back 0.5 percent.

Core PCE was up 0.2 percent sequentially. Softness in energy held back the headline PCE deflator to just 0.1 percent sequentially. On a year-on-year basis, the headline PCE index accelerated to 2.3 percent from 2.2 percent in the prior month, while core PCE was up 2 percent. The latter has been in the 1.9 percent to 2 percent range since March. The personal saving rate dropped marginally to 6.7 percent sequentially.

A solid retail sales report had already signaled at a strong rise in consumer spending at the beginning of the third quarter. The report released today affirms this to be the case. The second quarter’s 3.8 percent recovery in consumer spending would be difficult to repeat. However, consumer sentiment sitting at an 18 year high, along with rising incomes and employment gains all indicate towards a sound consumer spending growth in the 2.5 percent to 3 percent range for the second half of 2018, noted TD Economics in a research report. The U.S. Fed is expected to continue with its gradual tightening cycle.

“A symmetric 2% target as communicated by the Fed, means that even in the event that core inflation breaks somewhat above target, the Fed will still maintain its current policy path. All told, a September hike appears to be in the bag, and is likely to be followed by another hike by year's end”, added TD Economics. 

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -15.5841. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex