August Personal Consumption Softens while Income Rises

Personal Consumption Expenditures (PCE) was effectively unchanged in August, standing at $11.5 billion, according to the most recent data release from the Bureau of Economic Analysis. Meanwhile, personal income rose by 0.2%, almost half of the gain in July.  The gain in personal income was the weakest since a drop in February, as wages, the largest component, only increased 0.1% after two consecutive increases of 0.5%.

The increase in disposable personal income – income remaining after deducting personal income taxes – slowed to 0.1% in August, after a 0.3% rise last month. On a year-over-year basis, disposable personal income still grew 2.4% since last year.

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Flat consumption and higher personal income boosted savings. In August, the savings rate increased to 5.7%, an uptick from a revised rate of 5.6% in July. The savings rate rose with the onset of the Great Recession as households repaired their balance sheets. However, this process of deleveraging held back GDP growth due to reduced consumption.

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