by Today’s data on August’s consumer spending were strong, and data for the previous months were revised up. We now expect consumption growth to reach some 3.3% in Q3 and remain robust thereafter. Consumption growth above expectations in August August data on household consumption and income were published today. Real consumption rose by a strong 0.4% m-o-m in August, slightly above consensus estimates (+0.3%). Already published data on retail sales and car sales for August had been quite upbeat, suggesting a solid reading, although not to that extent. In line with what had been suggested by revisions to retail sales figures, July’s real consumption number was revised up from +0.2% to +0.3%. Moreover, in accordance with the revised Q2 GDP data published last Friday, previous monthly figures for consumption were adjusted to a more robust path. The end-result was that, between Q2 and July-August, consumption grew by a strong 3.6% annualised, after +3.6% as well q-o-q in Q2 (revised up on Friday from 3.1%). Real disposable income rose by 0.3% m-o-m, following a robust rise of 0.4% in July. As consumer spending growth outpaced disposable income growth in August, the corollary was a drop in savings. The saving rate eased from 4.7% (revised down from 4.9%) in July to 4.6% in August (see the chart at the top of the next page).
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Today’s data on August’s consumer spending were strong, and data for the previous months were revised up.
We now expect consumption growth to reach some 3.3% in Q3 and remain robust thereafter.
Consumption growth above expectations in August
August data on household consumption and income were published today. Real consumption rose by a strong 0.4% m-o-m in August, slightly above consensus estimates (+0.3%). Already published data on retail sales and car sales for August had been quite upbeat, suggesting a solid reading, although not to that extent. In line with what had been suggested by revisions to retail sales figures, July’s real consumption number was revised up from +0.2% to +0.3%. Moreover, in accordance with the revised Q2 GDP data published last Friday, previous monthly figures for consumption were adjusted to a more robust path. The end-result was that, between Q2 and July-August, consumption grew by a strong 3.6% annualised, after +3.6% as well q-o-q in Q2 (revised up on Friday from 3.1%).
Real disposable income rose by 0.3% m-o-m, following a robust rise of 0.4% in July. As consumer spending growth outpaced disposable income growth in August, the corollary was a drop in savings. The saving rate eased from 4.7% (revised down from 4.9%) in July to 4.6% in August (see the chart at the top of the next page). Overall, after numerous revisions over the past few months, the savings rate appears to have been hovering irregularly around a flat trend since the beginning of 2013.
Overall, we remain optimistic about future growth in consumption. The pace of job creation remains solid, and oil prices have fallen back markedly over the past few months. As a corollary, on the back of the strong figures published for August – and revisions for Q2 and July – we are revising our forecast for Q3 consumption growth from 3.0% to 3.3% q-o-q annualised in Q3, after +3.6% in Q2. However, our forecast for Q3 GDP growth remains unchanged at 2.5%.
Core PCE inflation remains subdued
In today’s report on income and consumption, data were also published on the Personal Consumption Expenditures (PCE) deflator, the price measure targeted by the Fed. At core level (i.e. excluding food and energy), the PCE price index increased by 0.1% m-o-m in August, in line with consensus expectations. On a y-o-y basis, core PCE inflation inched back up to 1.3%, vs. 1.2% in July (1.24% before rounding) and 1.3% in April, May and June.
Core PCE inflation remains very moderate for the time being. With the lagged indirect impact of the latest spell of falling oil prices (and other commodities) and the recent further increase in the dollar, core PCE inflation is unlikely to pick up more than marginally, at least over the coming six months or so.