| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Personal Income - M/M | 0.4% | 0.2% to 0.6% | 0.4% | 0.2% | |
| Personal Consumption Expenditures - M/M | 0.5% | 0.3% to 0.9% | 0.4% | 0.8% | 0.9% |
| PCE Price Index - M/M | 0.5% | 0.4% to 0.6% | 0.4% | 0.2% | |
| PCE Price Index - Y/Y | 3.5% | 3.4% to 3.6% | 3.5% | 3.3% | 3.4% |
| Core PCE Price Index - M/M | 0.2% | 0.2% to 0.3% | 0.1% | 0.2% | |
| Core PCE Price Index - Y/Y | 3.9% | 3.8% to 4.0% | 3.9% | 4.2% | 4.3% |
Highlights
Core PCE prices arguably the most important of all US price measures edged up only 0.1 percent in August which is 1 tick below Econoday's consensus and follows two prior months at only 0.2 percent. These results play into the hands of those who think the Federal Reserve, which has penciled in one more rate hike this year, can do without further tightening. The year-over-year rate of 3.9 percent, though still about double what the Fed eventually wants, is the lowest in nearly two years.
The overall PCE, which includes food and energy that the core excludes, rose an as-expected 0.4 percent on the month for annual inflation of 3.5 percent in a reading, however, that isn't slowing but accelerating and compares with 3.4 and 3.2 percent in the two prior months. High food prices and high energy prices (thank OPEC) are at play here and provide policy hawks reason not to let up. Upward revisions to the annual rates in July, up 1 tenth each overall and for the core, also hint at resistance.
These readings are only part of the personal income and outlays report, the former rising an as-expected 0.4 percent on the month and the latter (personal consumption expenditures) also rising 0.4 percent which is 1 tenth shy of Econoday's consensus. Income benefited from increases in compensation as well as asset and rental gains. Spending saw increases for services and also goods. Yet when adjusted for inflation, spending edged only 0.1 percent higher on the month.
Though highlighted by the monthly core rate, these results on net are within expectations as reflected in Econoday's Relative Performance Index which is at plus 3 overall and plus 5 excluding inflation readings, both very near the zero line. US economic data had been exceeding expectations through much of the year but now are easing back to within forecasts, a trend that may tilt the balance of policy risk away from further tightening.
The overall PCE, which includes food and energy that the core excludes, rose an as-expected 0.4 percent on the month for annual inflation of 3.5 percent in a reading, however, that isn't slowing but accelerating and compares with 3.4 and 3.2 percent in the two prior months. High food prices and high energy prices (thank OPEC) are at play here and provide policy hawks reason not to let up. Upward revisions to the annual rates in July, up 1 tenth each overall and for the core, also hint at resistance.
These readings are only part of the personal income and outlays report, the former rising an as-expected 0.4 percent on the month and the latter (personal consumption expenditures) also rising 0.4 percent which is 1 tenth shy of Econoday's consensus. Income benefited from increases in compensation as well as asset and rental gains. Spending saw increases for services and also goods. Yet when adjusted for inflation, spending edged only 0.1 percent higher on the month.
Though highlighted by the monthly core rate, these results on net are within expectations as reflected in Econoday's Relative Performance Index which is at plus 3 overall and plus 5 excluding inflation readings, both very near the zero line. US economic data had been exceeding expectations through much of the year but now are easing back to within forecasts, a trend that may tilt the balance of policy risk away from further tightening.
Market Consensus Before Announcement
Personal income is expected to rise 0.4 percent in August with consumption expenditures expected to increase 0.5 percent. These would compare with July's 0.2 percent increase for income and 0.8 percent jump for consumption. Inflation readings for August are expected at monthly increases of 0.5 percent overall but only 0.2 percent for the core (versus July's increases of 0.2 percent for both). Annual rates are expected at 3.5 percent overall and 3.9 percent for the core (versus July's 3.3 and 4.2 percent).
Definition
Personal income represents the income that households receive from all sources including wages and salaries, fringe benefits such as employer contributions to private pension plans, proprietors' income, income from rent, dividends and interest and transfer payments such as Social Security and unemployment compensation. Personal contributions for social insurance are subtracted from personal income.
Personal consumption expenditures are the major portion of personal outlays, which also include personal interest payments and transfer payments. Personal consumption expenditures are divided into durable goods, nondurable goods and services. These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report, available in nominal and real (inflation-adjusted) dollars. Economic performance is more appropriately measured after the effects of inflation are removed.
Each month, the Bureau of Economic Analysis also compiles the personal consumption expenditure price index, also known as the PCE price index. This inflation index measures a basket of goods and services that is updated annually in contrast to the CPI, which measures a fixed basket.
Personal consumption expenditures are the major portion of personal outlays, which also include personal interest payments and transfer payments. Personal consumption expenditures are divided into durable goods, nondurable goods and services. These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report, available in nominal and real (inflation-adjusted) dollars. Economic performance is more appropriately measured after the effects of inflation are removed.
Each month, the Bureau of Economic Analysis also compiles the personal consumption expenditure price index, also known as the PCE price index. This inflation index measures a basket of goods and services that is updated annually in contrast to the CPI, which measures a fixed basket.
Description
The income and outlays data are another handy way to gauge the strength of the consumer sector in this economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. Savings are often invested in the financial markets and can drive up the prices of stocks and bonds. Even if savings simply go into a bank account, part of those funds typically is used by the bank for lending and therefore contributes to economic activity. In the past twenty years, the personal saving rate has diminished rapidly as consumers have spent a greater and greater share of their income. But that has reversed in part during the recession that began in 2008 as consumers have cut back on credit card use and have been rebuilding retirement accounts.
The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.
The PCE price indexes have gained importance since the Fed announced a medium-term inflation goal of 2 percent based on the headline number on a year-on-year basis. The Fed forecasts inflation for both the headline PCE price index and the core rate (excluding food and energy).
Importance
Income is the major determinant of spending -- U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for more than two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.
Interpretation
Increases (decreases) in income and consumption cause bond prices to fall (rally). As long as spending isn't inflationary, the stock market benefits because greater spending spurs corporate profits. Financial market participants pay somewhat less attention to personal consumption expenditures than to retail sales, which are released earlier in the month. However, they do closely monitor personal income and the PCE deflator.
Changes in personal income signal changes in consumer spending. For instance, a period of rapid income growth may signal future gains in personal consumption expenditures as well. Conversely, a period of declining income growth could signal an impending recession. While consumers often still must purchase necessities, discretionary purchases may decline, or moderate.
Consumers are more likely to increase spending when they see their stock portfolios increase in tandem with the stock market. When the stock market falls, spending is likely to decline because consumers feel less wealthy. Home prices and home equity have similar effects. Rising home prices boost the amount of equity consumers have in their homes. This allows access to Home Equity Line of Credit (HELOC) accounts. Plus consumers feel wealthier whether they have a HELOC account or not. When home prices decline, home equity falls and cuts into consumer spending.
Personal income is a comprehensive figure, but also incorporates taxes consumers must pay. By removing personal tax payments from personal income, we are left with disposable income. This is what consumers have left to spend on goods and services. Adjusting for inflation reveals growth in real disposable income.
On the inflation front, if PCE inflation is running below the Fed's goal of 2 percent inflation, that is seen as favorable toward Fed ease or neutral monetary policy. PCE inflation above 2 percent suggests that the Fed might be more inclined to raise policy rates.
The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.
The PCE price indexes have gained importance since the Fed announced a medium-term inflation goal of 2 percent based on the headline number on a year-on-year basis. The Fed forecasts inflation for both the headline PCE price index and the core rate (excluding food and energy).
Importance
Income is the major determinant of spending -- U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for more than two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.
Interpretation
Increases (decreases) in income and consumption cause bond prices to fall (rally). As long as spending isn't inflationary, the stock market benefits because greater spending spurs corporate profits. Financial market participants pay somewhat less attention to personal consumption expenditures than to retail sales, which are released earlier in the month. However, they do closely monitor personal income and the PCE deflator.
Changes in personal income signal changes in consumer spending. For instance, a period of rapid income growth may signal future gains in personal consumption expenditures as well. Conversely, a period of declining income growth could signal an impending recession. While consumers often still must purchase necessities, discretionary purchases may decline, or moderate.
Consumers are more likely to increase spending when they see their stock portfolios increase in tandem with the stock market. When the stock market falls, spending is likely to decline because consumers feel less wealthy. Home prices and home equity have similar effects. Rising home prices boost the amount of equity consumers have in their homes. This allows access to Home Equity Line of Credit (HELOC) accounts. Plus consumers feel wealthier whether they have a HELOC account or not. When home prices decline, home equity falls and cuts into consumer spending.
Personal income is a comprehensive figure, but also incorporates taxes consumers must pay. By removing personal tax payments from personal income, we are left with disposable income. This is what consumers have left to spend on goods and services. Adjusting for inflation reveals growth in real disposable income.
On the inflation front, if PCE inflation is running below the Fed's goal of 2 percent inflation, that is seen as favorable toward Fed ease or neutral monetary policy. PCE inflation above 2 percent suggests that the Fed might be more inclined to raise policy rates.
