Consumer Spending Rises with Increase in Wage Income

Total personal income in the U.S. increased in July by 0.4% on a nominal basis for the fourth consecutive month. Wages and salaries rose by a robust 0.5%, (mainly because more people were working as opposed to earning higher wages). Total wages in goods producing industries were up by 0.7% over the month, while wages in services industries advanced by 0.5%. Services account for just over 67% of the total wage bill in the U.S. with the remainder about evenly split between goods producing industries and the public sector. Government transfers (social security, Medicare, Medicaid, unemployment insurance, veterans’ benefits) also increased by 0.5% in July.

Real disposable income (adjusted for taxes and inflation) increased by 0.4% while real personal consumption expenditures moved up by 0.2%. With incomes rising faster than spending, the saving rate increased to 4.9% in July from 4.7% in June. Spending on durable goods was up by 1.3%, while spending on nondurable goods and services both edged up by 0.1%.

• On a year-to-year basis, incomes and spending moved higher in July:

• Real disposable income growth accelerated in July, rising by 3.3% versus 3.0% in June

• Real personal consumption expenditures were up by 3.2%, Growth in real spending on goods (3.9%) outpaced spending on services (2.8%) although in dollar terms, Americans spend more than two times as much on services as they do goods.

Consumer prices were little changed over the month in July, inching up by 0.1%. Over the year ending in July, consumer price inflation increased by just 0.3%. The current low inflation environment has helped support consumer spending in the absence of stronger hourly wage gains.

The outlook for consumer spending for the rest of the year is fairly optimistic. Supported by employment growth, solid gains in disposable income and low inflation, real consumer spending should increase by about 3.0% in the third and fourth quarters of this year. 
Source: http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm