The U.S. August personal income and spending report partially captured the loss of roughly $60 billion in income supplements as personal income declined 2.7%. Disposable income dropped 3.2%, or 3.5% after adjusting for inflation, the Commerce Department reported on Thursday.
The decline came as roughly $60 billion in income supplements disappeared.
Despite those sharp declines, spending advanced 1% and is up 40.3% on a three-month average annualized pace. The latter is part of the rebound narrative that will likely result in a third-quarter gross domestic product increase that arrives above 30%, while the former clearly indicates that the pace of spending is slowing.
It’s quite clear, given the income dynamics and the lack of any further fiscal support coming to American households, that spending will not be sustainable anywhere near these levels.
The savings rate stands at 14.1%, well above the 20-year average of 6.4% but down from the cyclical peak of 33.6% recorded in April. This is a function of upper-income earners who for the most part have been left economically intact but have reduced their spending.
Total spending since January is down 3.8% overall, while upper-income spending is down 7.1%. Those with low incomes who have been the recipients of fiscal aid have actually increased their spending by 0.3% since January.
The core personal consumption expenditures deflator, which is used by the Federal Reserve to set policy, increased 0.3% and arrived at 1.4% on a year-ago basis, well below the 2% target. The top-line PCE deflator increased 1.2% year over year. While much has been said about the price of food, inside the PCE index the cost of food declined for the second straight month in August and is up 4.6% on a year-ago basis.
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