The Bureau of Economic Analysis said that personal spending increased by 0.4 percent in August, mirroring the gain seen in July. It has not been positive for six consecutive months, after essentially stagnating in February. Durable and nondurable goods spending were both higher for the month, up 1.2 percent and 0.6 percent, respectively. Motor vehicles and parts helped to buoy the durable goods purchasing numbers in each of the past two months, up 1.6 percent and 2.1 percent in July and August, respectively, and rebounding from the 3.4 percent decline in June. On a year-over-year basis, personal spending has increased by 3.5 percent, down from 3.7 percent in the prior report. In general, this suggests that Americans are increasing their spending modestly, but it also indicates a slower rate of purchasing than the more-robust pace seen in late 2014. For instance, the year-over-year rate peaked at 5.0 percent in 2014 in August.
Meanwhile, personal income grew by 0.3 percent in August, down from 0.5 percent in July and the slowest increase in five months. 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. Total manufacturing wages and salaries increased from $794.4 billion in July to $796.3 billion in August. This continues an upward trend for the sector, with manufacturing wages and salaries totaling $746.8 billion and $780.9 billion on average in 2013 and 2014, respectively.
With spending growth slightly outpacing personal income, the savings rate edged a bit lower, down from 4.7 percent to 4.6 percent. It has averaged 4.9 percent year-to-date, up marginally from the 4.8 percent average experienced in all of 2014. The larger story, however, has been the increase in the savings rate from 4.5 percent in October 2014 to 5.4 percent in February, with the rate declining since then.
In other news, the personal consumption expenditure (PCE) deflator was unchanged in August, decelerating largely due to declining energy costs. Along those lines, energy prices fell 2.3 percent in August, and year-to-date, costs for energy goods have declined 16.2 percent. Over the course of the past 12 months, the PCE deflator has risen just 0.3 percent, with core inflation – which excludes food and energy prices – up 1.3 percent. Each suggests that overall pricing pressures remain quite minimal for now, which continues to give the Federal Reserve flexibility in terms of monetary policy, at least for now.
Chad Moutray is the chief economist, National Association of Manufacturers.