“Disposable income rose 0.4% in July, marking the fourth month in a row of growth”.
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The report could help convince investors of Fed Chair Janet Yellen’s view, most recently expressed on Thursday, that the economy was strong enough to warrant a rate increase this year.
Personal income, reflecting Americans’ pretax earnings from salaries and investments, climbed 0.3% in August.
Consumers are a mainstay of the United States economy. However, even though American businesses are selling larger amounts of goods and services domestically, the increased money flow hardly affected U.S. inflation as imported goods and fuels are depreciating due to the dollar’s strength and low USA oil production breakeven, respectively.
Projections for spending ranged from gains of 0.2 percent to 0.5 percent.
The economy is so far performing rather well amidst the global financial turbulence, providing stronger short-term headwinds to U.S. finance. Wages and salaries continued to rise in August and were up by 0.5% month-on-month but this was down from July’s 0.6% rise.
Households slowed their spending during the winter but picked up the pace in the spring, helping GDP accelerate to a 3.9 per cent growth rate during the second quarter of the year. Still, personal income growth has remained at fairly decent levels, up 4.2 percent year-over-year but down from 5.2 percent in December.
“The world financial markets were in retreat and scary China economic growth stories filled the media skies in search of an audience, but the consumer did not go into hibernation; they headed to the mall to shop till they dropped in August”, said Chris Rupkey, chief financial economist at Union Bank in New York. Vast stockpiles of raw materials have become a concern: the USA need to put inventories into processing soon in order to both boost domestic manufacturing and spur petrol prices, thus providing an impulse to inflation.
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While inflation remains well under target, today’s report offers a few evidence that it will gradually move up towards 2.0% – precisely what the Fed is looking for in order to begin the normalization process. Also, inflation as gauged by the PCE price index was unchanged in August.
