Spending, incomes and inflation were all heading the right direction in July
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Illustration: Brendan Lynch/Axios
We have done plenty of hand-wringing here about the various risks to the economy. In particular, a recession could arrive, or inflation could reignite. But that was decisively not what was happening in July.
Why it matters: New data on incomes, consumer spending and inflation in mid-summer point to an economy in happy balance.
- Americans made more money, even after inflation. Their spending shows no signs of buckling. And inflation continues to moderate.
- Continued progress on inflation will make the Fed comfortable following through with its plans for a September interest rate cut, while strong income and spending numbers lower the odds of a supersized half-point cut.
Driving the news: The Commerce Department said Friday morning that personal income rose 0.3% in July. After taxes and inflation, incomes were still up 0.1%.
- Meanwhile, consumption spending rose 0.5%, or 0.4% after inflation.
- Inflation, as measured by the Personal Consumption Expenditures Price Index favored by the Fed, was steady at 2.5% year over year, continuing to behave in ways consistent with gradually moving toward the Fed's 2% target.
- PCE inflation excluding food and energy, for example, has come in at a 1.7% annual rate over the last three months.
Between the lines: The July jobs report was surprisingly soft, but the new data points to an economy where core activity drivers remained robust this summer.
- These data come out with a longer delay than the jobs report and other closely watched indicators, but they are some of the most important measures of how things are going.
- Ultimately, what the economy is is a perpetual motion machine in which one person's spending becomes another person's income. These numbers point to both sides of that equation being on quite solid footing through July.
Of note: The panel of economists that rules on when business cycles start and end puts heavy weight on "disposable personal income excluding transfer receipts" like Social Security and unemployment benefits when deciding whether a recession has begun.
- That measure rose 0.2% in July, the third straight month of increase.
What they're saying: "Consumers continue to spend in mid-2024, pushing the U.S. economy forward," wrote PNC chief economist Gus Faucher in a note.
- "Household incomes are rising with the solid labor market, including moderate job growth and wages that are increasing more quickly than inflation," he added, with more affluent consumers also benefiting from a rising stock market and resilient home prices.
The bottom line: The fundamentals of the U.S. economy, at least as of July, looked sound.
