NEW YORK — Real personal consumer expenditures (PCE) in the United States rose 0.3 percent in July, slightly exceeding market expectations and continuing the string of solid gains seen in the second quarter, RBC Economics reported.
Nominal PCE was also up 0.3 percent, while personal income rose 0.4 percent with help from another solid gain in wages and salaries.
Nominal spending on durable goods rose 1.6 percent in July as unit auto sales picked up to their strongest monthly pace year to date. Nondurable sales fell 0.5 percent to retrace the previous month’s gain, while spending on services was slightly above trend with a 0.4 percent increase recorded in July.
The increase in spending was outpaced by a broad-based 0.4 percent gain in personal income, pushing the savings rate up to 5.7 percent. That rate is roughly in line with averages over the last two years but down from a multi-year high of 6.2 percent earlier this year, said Economist Josh Nye.
Year-over-year growth in the headline PCE deflator fell back to 0.8 percent as consumer inflation continues to be weighed down by cheaper energy prices, he explained, noting core PCE inflation, excluding food and energy, was steady at 1.6 percent for a fifth consecutive month.
“As such, it is difficult to make the case that inflationary pressure at the consumer level is building in the United States, despite limited slack in the labor market and gradually rising wages,” said Nye.
“With a surge higher in the second quarter, consumer spending grew at an average annualized pace of 3 percent in the first half of the year, effectively providing the sole source of growth in the economy over that period,” he added.
“July’s increase is consistent with consumer spending maintaining that pace in Q3, thus supporting our expectation that U.S. consumers will once again make a strong contribution to GDP growth in the third quarter,” said Nye.
“That said, our forecast for a return to above-trend growth in the overall economy also relies on a positive contribution from other sectors,” he explained. “We look for a return to growth in business investment after three quarters of declines, as well as stronger residential investment and government spending, to support domestic demand.
“A positive contribution from inventories, which declined in Q2 and subtracted more than a percentage point from growth, is also expected to help boost GDP growth to a 3 percent annualized pace in Q3,” he added. “More balanced growth over the second half of the year, rather than over-reliance on the consumer, would likely further strengthen the case for an increase in the fed funds rate.”
SOURCE: RBC Economics press release