U.S. July Personal Income and Spending and Core PCE Prices as expected, but Advance Goods Trade Deficit up as imports rebound
July’s personal income and spending report is in line with expectations, with the 0.3% core PCE price index matching the core CPI, and gains of 0.4% in income and 0.5% in spending also as expected. However a rise in the July advance goods trade deficit to $103.6bn from $84.9bn is unexpected, and led by a bounce in imports, probably led by China.
Exports remains subdued, falling by 0.1% after a 0.7% fall in June. Imports are showing more volatility, bouncing by 7.1% after falling by 4.6% in June. This appears to reflect a rebound in imports from China after tariff rates were lowered from extreme levels.
The deficit is higher than in each month of Q2 but lower than in each month of Q1 when imports surged ahead of tariffs. The deficit is fairly close to where trend was before the November election.
The imports surge was led by industrial supplies, which rose by 25.4%. The imports rise is negative for Q3 GDP. Gains of 0.2% in both advance wholesale and retail inventories are moderate and do not offset the negative GDP impact of the surge in imports.
The core PCE price index was up by 0.27% before rounding, which is slightly below the core CPI, but similar to a 0.26% rise in June and does suggest a modest recent acceleration. Overall PCE prices at 0.2% also matched their CPI equivalent after rounding.
Yr/yr PCE prices were stable at 2.6% overall but the core rate edged up to 2.9% from 2.8%. This is the highest since February and remains significantly above the 2.0% target.
The 0.5% consumer spending rise matched the retail sales gain but retail data slightly outperformed while services rose by only 0.4% and only 0.1% in real terms, which is line with most recent months.
The 0.4% personal income gain saw a 0.6% rise in wages and salaries supported by a firmer workweek in the non-farm payroll detail. The other components of personal income were restrained by an unusual dip in Social Security payments, which had been lifted by some temporary factors recently.