Personal Income & Spending Improved Moderately In August - September 27, 2013
An hour before the start of the new trading day, investors received the latest report on the U.S. economy when the Department of Commerce released data on personal spending and consumption for the month of August. The figures were decent and matched consensus’ expectations.
Specifically, the government reported that personal income climbed 0.4% in August, compared with respective increases of 0.3% and 0.2% in June and July. Meanwhile, personal consumption expenditures for the period increased 0.3%, up from 0.2% in the preceding month. If the latter trend, which showed that consumers are spending slightly more than they did in the prior month, continues, it would likely be a positive development for the economy in the coming months, especially during the holiday shopping season. This is crucial to the overall health of the U.S. economy, as consumer spending accounts for nearly 70 percent of the nation’s economic output.
The decent reading for personal income, which marked the fourth consecutive monthly increase, was likely due to a slight pickup in employment and better wages and salaries during the month of August. Specifically, private wages and salaries increased by $28.5 billion last month, which was a stark contrast to a decrease of $10.9 billion in July. Of note, services-producing industries’ payrolls increased by $20.5 billion after falling by $6.3 billion in July. This is no doubt a positive sign as we look ahead to the upcoming holiday-shopping season, a period that typically brings a pickup in services and manufacturing activities.
Meantime, as noted, personal consumption expenditures increased by 0.3% in August, which was slightly above the July rate of 0.2%. In dollar terms, personal spending rose by $34.5 billion in August, compared to an increase of $18.3 billion in July. Looking ahead, investors should keep an eye on energy prices, specifically crude oil costs, which have fallen some in recent weeks as it looks like a U.S.-led attack on Syria will be averted. A pullback in energy costs would likely lead to an increase in disposable income in the coming months, which would be a welcome development for individuals and families who will probably contemplate purchases of big-ticket items during the holiday shopping season. Today’s report showed that disposable personal income increased by 0.5% in August and we think it could possibly strengthen in the months ahead if energy prices were to cooperate.
All in all, this report was semi-encouraging and does provide some hope that the consumer will be active during the crucial months that lie ahead for the retail industry. (Investors should note that earlier this week, the Conference Board reported a slight dip in consumer confidence, but that report can often be quite volatile.)
At the time of this article's writing, the author did not have positions in any of the companies mentioned.