U.S. personal spending remains strong in June, personal income rises for second straight month

Personal spending in the U.S. continued to be strong in June, underpinned by growth in personal income. Personal income and spending report came in slightly stronger than expected. Nominal personal income rose 0.4 percent sequentially for the second consecutive month, driven by wages and salaries. Disposable personal income growth continued be stable 0.4 percent sequentially. Meanwhile, nominal personal spending was up 0.4 percent sequentially. Moreover, May’s data was upwardly revised by three-tenths, now showing 0.5 percent rise in nominal spending. Spending, adjusted for inflation, rose 0.3 percent sequentially in the month.

Delving into details, nominal spending on services recovered in June, following moderation in May. A rebound was expected sooner than later, given that services consumption has continued to be solid historically, stated Barclays in a research report. Meanwhile, goods consumption fell in the month, mainly because of durable and nondurable goods. The saving rate remained stable at 6.8 percent, in line with the comprehensive revisions issued last week by the BEA, which indicated a much higher saving rate in general, compared to what had been reported previously.

However, the saving rate has fallen compared to the January rate, and implies that households are starting to adjust their consumption behavior to reflect higher after-tax incomes. Personal consumption expenditure is expected to anchor growth in the quarters ahead, noted Barclays.

The report’s inflation side was widely consistent with expectation. The headline PCE index rose 0.1 percent sequentially and 2.2 percent on a year-on-year basis. The annual growth rate in PCE came in one tenth weaker than anticipated. Energy prices dropped 0.1 percent and was responsible for most of the moderation in PCE. Meanwhile, food prices recovered in the month, rising 0.2 percent sequentially. PCE, on a core level, rose 0.1 percent and 1.9 percent on a year-on-year basis. Deflation in durable goods prices continues to widely counter service inflation.

“We believe a gradually tightening resource market will put some upward pressure on PCE inflation over time, lifting y/y rates of core PCE inflation to 2.1% by the end of this year”, added Barclays.

At 19:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -53.7481. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex