After stalling for two months, Americans increased their spending in July, according to the latest data from the Bureau of Economic Analysis. This is good news for manufacturers, with higher durable and nondurable goods consumption, up 0.8 percent and 0.6 percent. The durable goods picture has been positive for two consecutive months; whereas, the increase in nondurables reversed a similar decline from June.
Meanwhile, personal income rose 0.3 percent in July, the same growth rate as noted in May and June. Personal income was up 3.6 percent year-over-year, edging slightly higher than last month. Wage and salaries disbursements for workers at manufacturing firms increased from $728.3 billion in June to $731.9 billion in July. It was $702.5 billion in December, suggesting an increase of $25.8 (or 3.7 percent) in the past seven months.
With spending slightly outpacing income, the savings rate fell from 4.3 percent to 4.2 percent. Overall, the savings rate has generally risen since November, when it stood at 3.2 percent. This contrasts with 2011, which had a downward trend in the savings rate. This indicates that consumers are paying down, or not taking on as much, debt.
Inflationary pressures continue to ease, with prices unchanged in July. The personal consumption expenditure deflator was up 1.3 percent in July over the same time last year. This represents a significant deceleration from the 2.4 percent growth rate observed just six months ago.
The lack of appreciable inflation – particularly at rates below the Fed’s stated target of 2 percent or less – allows policymakers to focus on expansionary measures, should they choose to do so. This may or may not include another round of quantitative easing, with the Fed already pursuing policies that have pushed interest rates to “exceptionally low” levels for the foreseeable future.
Chad Moutray is chief economist, National Association of Manufacturers.