Personal Income & Spending Rise Again In August

Today’s income and spending report looks encouraging. Disposable personal income (DPI) rose 0.5% last month vs. July—the strongest monthly comparison since February. Personal consumption expenditures (PCE) also increased in August, albeit at a lesser pace. Nonetheless, PCE gained 0.3% last month, up a bit from July’s advance and generally in line with expectations. And as we’ll see, the year-over-year comparisons improved again too. Overall, it’s fair to say that income and spending are both trending positive these days, offering a bit more support for thinking positively for the economic outlook in the near term.


Indeed, both DPI and PCE last month posted monthly gains for the fourth update in a row. The increases are hardly stellar, but they’re positive and, for the moment, persistent.

The real news in today’s release is the sight of another round of stronger year-over-year changes. As the next chart shows, DPI and PCE moved higher last month relative to their respective year-earlier numbers vs. the previous update. The rebound in DPI is particularly noteworthy in today’s report. Indeed, disposable personal income advanced 2.8% last month vs. a year ago. That’s the fastest annual rate of growth so far in 2013 and it reflects a substantial turnaround from the last several years, when decelerating growth was conspicuous in both income and spending data. It’s anyone’s guess if this represents a major change for the better, but the possibility looks somewhat more plausible today.

Not surprisingly, private-sector wage growth is improving too. The 4.4% annual increase in private wages through last month is the best annual comparison so far in 2013. Sure, the improvement is modest at best, but the fact that the rate of increase is turning up, and the upbeat trend has been holding steady since May, suggests that the big-picture outlook for the all-important consumer sector is improving, if only at the margins.

It’s premature to say that we’re at a bullish turning point that will lead to even faster rates of growth with consumer spending and income. But it’s not too early to consider that moderate growth is becoming more persistent. In turn, that’s a positive for the economy overall, which is still holding up quite nicely according to the latest business-cycle profile via the Economic Trend & Momentum indices.
That leads us to focus on the next big data point: September nonfarm payrolls. Will we see some improvement on this front as well? We’ll have the answer a week from today: the employment report is scheduled for release on Friday, October 4. Meantime, the numbers du jour make it slightly easier to think positively.
What could go wrong? As if on cue, just as the macro trend may be improving, our elected representatives in Washington seem hellbent on throwing a wrench into the cyclical machine. As the budget negotiations drag on, the threat of a government shutdown—again—draws ever closer, perhaps as early as October 1 if saner minds don’t intervene. A shutdown probably won’t happen, but the fact that it could isn’t going to help the outlook on the economic front until this self-inflicted insanity is resolved. In other words, the biggest threat the economy seems to be the government… again!