August 31, 2023 | 09:06
Supercore A Supermoon? It is Bigger.....
Hate to do the 'good', 'bad' and 'ugly' thing but .....
Never underestimate the U.S. consumer. Americans keep spending despite worries about inflation (Exhibit A: the Conference Board's latest survey) and the looser job environment. Personal spending jumped an above-expected 0.8% in July, the most in half a year. In real-terms, that works out to +0.6%... a great start to Q3! And, the revisions that we were expecting for the second quarter were interesting...downward revision to April, upward revision to May and an even bigger upward revision to June. So momentum built up as the quarter came to an end. Where did consumers spend their hard-earned greenbacks? Almost everywhere.... cars, recreational goods & vehicles, dining out/hotels (most in six months), and clothing, as an example. Spending on recreation services was down, however.
That's the good news. The bad news is.... personal incomes were only up 0.2%, which was expected but the smallest gain since December.
The ugly news.... well, maybe ugly is a bit of an exaggeration but wages & salaries, which should be viewed as THE key component of this entire report, rose only 0.4%. Still ok, don't get me wrong, but this follows three months in a row of about 0.5%-to-0.6% gains. So, the spending is coming from savings..... the saving rate fell to an 8-mth low of 3.5% in July. Slower wage growth but that's good for inflation/business.
Isn't it? The core PCE deflator was steady, up 0.2% in the month, or 4.2% y/y, exactly as expected. But the supercore measure, which the Fed is closely watching, jumped 0.5% in July alone, the most in six months, with the 3-month annualized pace speeding up to 3.9% (was 3.3% in the prior two months), or 4.7% above a year ago, the highest since February. See the chart below.
Bottom Line: The soft landing view still holds, but there are some warning signs coming from the consumer as the savings rate continues to tick down. That was bound to happen at some point following the Fed's aggressive rate hike campaign. And, the higher supercore measure is certainly not going to comfort policymakers.