They Shopped Until They Dropped—–August Consumer Spending Up 0.00%

Personal income rose 0.2% in August, as economists expected. However, consumer spending rose 0.0% vs. the Econoday Consensus estimate of 0.2%.

The personal consumption expenditures (PCE) price index came in at +0.1% vs. a consensus of +0.2%. Last month the PCE was flat. This certainly is not what the Fed expected or wanted.

Year-over-year, PCE is up 1.0%, with the core PCE (excluding food and energy) up 1.7%.



August was a soft month for the consumer, both for income and especially for spending. Income rose only 0.2 percent in the month as wages & salaries, which had been on a 4-month surge, could inch only 1 tenth higher in August. Consumer spending, which had also been on a 4-month winning streak, came in unchanged as durable goods declined, largely reflecting monthly weakness in vehicle sales, as did non-durable goods, in part reflecting low fuel prices. Service spending advanced, at plus 0.3 percent, but at a slower rate than prior months. Despite the weakness in income, the consumer put money into savings which are at a 5.7 percent rate for a 1 tenth gain and a special factor that held down spending.

Inflation readings do show more life with the PCE price index up 0.1 percent and the core up 0.2 percent, both 1 tenth better than the prior month. Year-on-year, the overall measure rose 2 tenths to 1.0 percent with the core up 1 tenth to 1.7 percent and inching toward the Fed’s 2 percent goal.

For policy makers, what strength there is in prices is probably offset by the softness in income and spending. But the results of this report are no surprise, ultimately reflecting what was only a moderate gain for payrolls in August.

Recent History

Consumer spending posted a solid 0.3 percent gain in July despite softness in core retail sales during the month. Weakness in total retail sales in August has forecasters calling for only a 0.2 percent gain. Personal income has also been solid, boosted in June and July by outsized 0.5 percent gains in wages & salaries. But forecasters see August income also slowing to plus 0.2 percent. Modest strength following a run of weakness is expected for both the PCE price index and the core PCE price index where forecasters are calling for 0.2 percent gains for each.

Mike “Mish” Shedlock