Preview: Due August 26 - U.S. July Personal Income and Spending - PCE prices to match CPI, savings finding a base
We expect July PCE price data to match the July CPI, rising by 0.1% overall and 0.2% ex food and energy. We expect a modest 0.2% increase in personal income, outperforming an unchanged outcome from personal spending.
PCE price data has outperformed CPI in most recent months, a contrast from its usual tendency to underperform. Before rounding CPI rose by 0.074% but PCE prices are less sensitive to gasoline. Core CPI rose by 0.215%. We doubt core PCE prices will be quite strong enough to round up to 0.3%.
Yr/yr core PCE prices would then slip to 3.2% from 3.3% in June and a recent high of 3.4% in May. This is still well above the 2.0% Fed target. Overall PCE prices would slow to 3.6% from 3.7% in June and a recent high of 4.1% in May. The energy surge did appear to have some feed through to the core rate.
July’s non-farm payroll was weak with average hourly earnings up by only 0.1%, implying a rise of only 0.1% in wages and salaries. We expect the other components of personal income to be mostly subdued, but without June’s sharp fall in farm income from a strong May. June also saw personal income rise by the 0.2% we expect from July, but with a 0.2% rise in wages and salaries.
July retail sales fell by 0.6% in a correction from a strong Q2 that significantly outperformed real disposable income. We expect services to rise by 0.4%, matching June’s gain, though in real terms we expect services to slow to 0.2% after three straight gains of 0.3%. There is risk that services will also show a significant slowing from a strong Q2. We expect a savings rate of 2.9%, up from 2.8% in June and 2.7% in May, which was the lowest since June 2022.
