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First Cut: Personal income in July outpaced by personal consumption; PCE deflator up on trend year-over-year

Personal income was up a scant 0.1% in July from June, pausing after a series of solid gains. Wages and salaries rose a bit faster than that at up 0.2%, but suggested that upward momentum for wage hikes is uneven after the 0.5% increase in June after up 0.1% in May.

Personal spending rose 0.6% in July from June, a pick up from up 0.3% in June, but not much different that April or May. Spending on durables was up 0.6%, hinting that even with softer sales of motor vehicles, spending on hard goods was solid. Nondurables spending was up 1.1%, in part on increases in gasoline prices that have started to ease up in August. Services spending was up 0.5% from the prior month and remains more-or-less steadily rising in recent months.

The PCE deflator was up 1.4% compared to July 2019, a pace of increases that continues to lag the Fed’s 2% inflation objective by enough that policymakers could again use it as a justification for a rate cut similar to that given after the July 30-31 FOMC meeting along with heightened risks to the outlook for the economy. The core PCE deflator was up 1.6% year-over-year, closer to the objective but still enough below for the gap to be considered too wide.

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