Consumer spending was unchanged in August restrained by the smallest income gain in six months and by a modest increase in the saving rate.
The pause in consumer purchases came after four strong months, April through July where consumption rose an average of 0.6 percent, the best third of a year since August 2009. The median forecast was for a gain of 0.1 percent. The prior month was revised to 0.4 percent from 0.3 percent.
The annual increase in personal spending dropped to 3.6 percent in August from 3.8 percent in in July. It has averaged 3.6 percent this year, little changed from 2015's 3.5 percent average.
Spending was weak across a wide range of categories. Sales of new cars fell 4.5 percent, household furnishings dropped 1.0 percent, appliance sales contracted 0.7 percent, and perhaps surprisingly for the month before the start of school, clothing and footwear purchases dropped 0.1 percent with children and infant wearables falling 0.2 percent. Gains were led by television sales (a group that we assume included flat screens) at 0.6 percent, food and beverages at 0.2 percent, and a 1.3 percent rise in the sales of meat and poultry.
These spending figures from the Bureau of Economic Analysis a division of the Commerce Department are not corrected for inflation.
Real personal spending, a gauge which does adjust for price changes, declined 0.1 percent in August after rising 0.3 percent in July. It had been predicted to increase 0.1 percent. The August dip is only the second negative month since spending fell 0.3 percent in January 2014. Real purchases had also declined 0.1 percent this past January. The annual gain fell to 2.6 percent in August from 2.9 percent in June and July.
Personal income climbed 0.2 percent in August as expected. This was half of July’s 0.4 percent advance which was the best month since a 0.5 percent jump in April. August was the smallest gain since a 0.1 percent decline in February.
In the eight months this year through August the monthly average increase in personal income is 0.2 percent, down from 2015's 0.3 percent average. Government transfer payments contributed $10 billion to the month’s nominal $39 billion gain in personal income, almost as much as the $13.3 billion portion of wages.
The annual increase in personal income fell to 3.1 percent in August from 3.2 percent the month before, equaling the lowest gain this year in May and June.
Income gains have been falling for almost two years after reaching a peak of 6.2 percent in October 2014. They averaged 4.50 percent in 2015, 3.67 percent in the first quarter of this year, 3.20 percent in the second and 3.15 print in the two month so the third quarts.
The personal spending data connotes a smaller contribution to GDP from consumers in the third quarter.
In the first and second quarters the relatively robust household consumption had underpinned growth, weak as it was, in the face of declines in business and government outlays. The 0.63 percent average monthly expansion in consumption in the second quarter was the strongest quarterly growth since 2014 and helped bring annualized GDP to 1.4 percent today, revised from its initial 1.1 percent calculation.
In response to August’s flat personal spending the Atlanta Feed reduced its forecast for third quarter real consumer spending growth to 2.7 percent from 3.0 percent and consequently lowered its GDPNow estimate for third quarter GDP To 2.4 percent from 2.8 percent. This is their lowest forecast for the current quarter thus far. Forecasts started at 3.6 percent and rose to 3.8 pert in early August. The next update will be on October 3rd after the ISM manufacturing report for September.
The saving rate rose to 5.7 percent of disposable income in August, the second gain in a row and its highest since May when it was also 5.7 percent. It has declined from 6.13 percent in the first quarter and 5.67 percent in the second.
Chief Market Strategist
WorldWideMarkets Online Trading