Consumer incomes and spending still outpace inflation, despite everything


Gasoline spending plunges due to falling prices. “Real” spending on durable goods, asurprisingly, skips for the 2nd month. Sservicespending bulls but stuck below the pre-pandemic trend.

By Wolf Richter for WOLF STREET.

Something interesting happened in July for inflation-adjusted consumer income and spending. Remember when President Biden said inflation was “0%” when the Consumer Price Index data was released in mid-August? Of course, neither inflation nor the CPI were at 0%. The CPI jumped 8.5% in July 2022, compared to July 2021, which is how we usually discuss inflation. But falling gasoline prices meant that the CPI was unchanged in July from June, so 0% change month-over-month, but 8.5% change one year to the next.

So today the Bureau of Economic Analysis released consumer income and spending for July. Adjusted for inflation (= “real”) by the PCE inflation measure, in July compared to June, the change in “seasonally adjusted annual rates” was:

  • Real personal income from all sources: +0.3%
  • Real personal income without government transfers: +0.4%
  • Actual personal expenses: +0.2%

Not adjusted for inflation:

Total consumer spending without adjusting for inflation increased by $23.7 billion in July compared to June (rising in the seasonally adjusted annual rate of spending). Spending decreased in three categories, notably for gasoline due to falling gasoline prices, and increased in the remaining categories:

Spending fell in all three categoriesin July from June, without inflation adjustment:

  • Gasoline: -$55.9 billion as gasoline prices plunge
  • Financial services and insurance: -20.1 billion dollars
  • Transportation services: -0.5 billion dollars due to a slight decrease in air fares.

Spending increased in the remaining categories in July from June, without inflation adjustment:

  • Housing and utilities: +$23.4 billion
  • Other services: +13.7% billion dollars
  • Other non-durable goods: +$11.0 billion
  • Final expenditure of NPISHs (Non-profit institutions serving households): +10.8 billion dollars
  • Goods and recreational vehicles: +$9.7 billion
  • Motor vehicles and parts: +$8.4 billion
  • Furniture and durable household equipment: +$7.3 billion
  • Clothing and footwear: +$4.3 billion
  • Food and beverages: +$3.6 billion
  • Health: $2.8 billion
  • Other durable goods: +$2.0 billion
  • Catering and accommodation: +$1.7 billion
  • Recreational services: +$1.4 billion.

Adjusted for inflation.

The BEA adjusts consumer income and spending based on its measure of PCE inflation, not the measure of CPI inflation. Its July PCE price index fell 0.1% in July from June, following a 4.8% plunge in energy prices, and rose 6.3% year-on-year. the other.

In other words, inflation adjustments had little overall impact on revenue and spending growth in July compared to June, although they did have an impact on year-over-year growth. the other.

Income, adjusted for PCE inflation, increased.

“Real” personal income from all sources increased by 0.3% in July compared to June, reversing the decline of the previous month, and is stable with April (purple in the graph below).

This includes income from wages and salaries, dividends, interest, rentals, farms, businesses, and government transfer payments such as stimulus, social security, unemployment, welfare, etc., but does not include capital gains/losses.

Compared to July 2021, real income fell by 1.6%; compared to July 2020, it fell by 2.2%; compared to July 2019, it is up 5.9%. It fell below the pre-pandemic trend earlier this year and stayed there.

Real personal income without transfer payments rose 0.4% in July compared to June, setting a new record. Compared to a year ago, it increased by 1.3%; compared to two years ago, it increased by 6.2%; compared to July 2019, it increased by 4.9%. But it remains below the pre-pandemic trend:

“Real” disposable income per capita has increased. Brought back to the per capita level and based on what’s left after taxes, “real” disposable income per capita rose 0.2% in June, at a seasonally adjusted annual rate, but fell 4.0% from July 2021 and down 6.6% from July 2020, and up just 1.6% from July 2019 (in “2012 dollars” to account for inflation). It fell well below the pre-pandemic trend (green line):

“Real” spending on goods and services increased to a new record high.

Consumer spending on goods and services in July, adjusted for inflation, increased 0.2% from June, 2.2% from July 2021, 9.9% from July 2020 and 5.1% compared to July 2019. They remain below the pre-pandemic trend (green line):

“Real” spending on non-durable goods continues to trend back after the pandemic bubble. Inflation-adjusted spending on food, fuel, household supplies and other non-durable goods fell 0.5% in July from June, which includes falling spending on gasoline due to of falling prices. From July 2021: -1.3%. But from July 2020: +5.2%; and from July 2019: +9.4%. This spending continues to return from the stimulus spending spree towards the pre-pandemic trend (green line).

“Real” spending on durable goods surprisingly jumped again. Americans just don’t want to slow down their purchases of things, it seems. Inflation-adjusted spending on vehicles, appliances, electronics, furniture and other durable goods jumped 1.5% in July from June, and the second consecutive month of increases, and rose 3, 4% from July 2021, up 10.6% from July 2020, and up 24.7% from July 2019.

These are big increases (adjusted for inflation!), because Americans have refused to bring this spending on durable goods back to the pre-pandemic trend; just wasn’t happening, even though everyone including me thought it would happen (green line).

Spending on services, adjusted for inflation, increased. “Real” spending on services – healthcare, housing, education, travel, sporting events, haircuts, repairs, subscriptions, streaming, etc. – increased by 0.2% in July compared to June, by 3.3% compared to July 2021, by 11.4% compared to July 2020, and by only 1.0% from July 2019.

It remains significantly below pre-pandemic trends, having roughly paralleled the pre-pandemic trend since March without catching up.

The share of spending on services remained at 61.9% of total spending in July, unchanged over the past three months, and remains below the share of around 64% in normal times, while spending on durable goods and unsustainable are still higher than before the pandemic. tendencies.

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