Summertime Fun: U.S. Incomes and Spending Rise Together, Savings Rate Holds Steady, Inflation Eases

FARGO, ND - JUNE 27: U.S. president Donald Trump greets supporters during a campaign rally at Scheels Arena on June 27, 2018 in Fargo, North Dakota. President Trump held a campaign style "Make America Great Again" rally in Fargo, North Dakota with thousands in attendance. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan/Getty Images

American households’ income and spending rose at a robust pace in June, indicating that consumers have the capacity to push the recent acceleration of the economy forward into the second half of the year.

Personal income rose 0.4 percent from May to June, the Commerce Department said Tuesday. The wages and salaries component of income, which excludes income from investments and self-employment, rose 0.4 percent. Personal-consumption expenditures increase at the same pace.

The matching pace of income and consumption gains indicates that consumers did not dip into savings to keep up the expansion of spending, meaning the expansion is not being built on a deterioration of household financial security. The saving rate in June was unchanged from May at 6.8%.

In fact, new data shows that American households have been saving even more than previously thought. The American savings rate has been between 6 percent and 8 percent in recent years, according to the new data. Previously it was thought to have been running between 4 percent and 6 percent.

The May consumption spending figure was revised up sharply, from 0.2 percent to 0.5 percent. April was revised up to 0.6 percent from an initial o.5 percent. This may mean that the already strong second quarter gross domestic product rate will be revised upward from the initial reading of 4.1 percent.

There’s some indication that much of the growth of spending is going into Americans having fun. Spending on goods was flat, while spending on restaurants and hotels rose sharply.

The report showed that inflation pressure eased in June. The price index for consumer expenditures, known as the PCE price index, rose just 0.1 percent in June and 2.2 percent compared with a year ago. The core PCE price index, which excludes food and energy prices and is the Fed’s favored inflation metric, rose 0.1 percent in June and is up just 1.9 percent for the year.


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