– by a New Deal Democrat
In today’s July personal income and spending report, there were more positives from the recent drop in gas prices.
Personal income rose 0.2% for the month in nominal terms and nominal spending rose 0.1%. But as the corresponding gauge of inflation, the PCE deflator, fell by -0.1%, real income rose by 0.3% and real personal expenditure rose by 0.2%. Meanwhile, June’s income and expenditure figures were revised up and down by 0.1% and -0.1% respectively.
This year, I compared both real personal income and spending to their level after the early 2021 stimulus round to May a year ago. Accordingly, the chart below is normalized to 100 as of May 2021:
Since then, real spending has grown by 2.5%, while real incomes have fallen by -1.0%.
Comparing real personal consumer spending to May 2021 real retail sales (essentially both sides of the consumption coin) shows that both were a hair above being flat in July:
Finally, the personal savings rate was unchanged at 5.0%, tied in June for the lowest since the Great Recession of 2009 (note: the chart below subtracts -5.0% to normalize the current reading to zero):
This is the lowest level since the end of the Great Recession. Only at the end of the boom of the 1990s and the housing bubble of the 2000s were they lower.
Typically, the savings rate tends to decline as expansions increase, leaving consumers more vulnerable to shocks. Recent months have seen consumers digging deeper into their savings to cope with higher gas prices. Which isn’t all bad news, since recessions usually start when consumers get scared enough to increase their savings rate.
Instead, as gas prices have eased since June, consumers have likely been a bit more confident. This was a very modestly good report.