US Consumer Spending: a soft reading, not yet a concern but… - Wells Fargo

Analysts from Wells Fargo, point out that consumer spending activity moderated in August in the US and warned that if the trend continues, it will be a concern for the GDP outlook. They see the Federal Reserve raising rates in December.

 Key Quotes:

“Personal income continued to march higher in August, rising 0.2 percent following July’s 0.4 percent increase. One factor behind the slower pace of income growth was a downshift in wage and salary growth, which rose just 0.1 percent for the month following two months of strong 0.5 percent increases.”

“The saving rate remained elevated at 5.7 percent in August, suggesting not only more cautious consumers but also reflecting ongoing consumer deleveraging as documented in the Fed’s household flow of funds data.”

“Nominal consumer spending came in flat in August, the slowest pace of spending since March of this year.”

“The only consistent major support to headline GDP growth in recent quarters has been consumer spending. While today’s softer real spending is not overly concerning, should we continue to see flat or negative readings in the months ahead, we would become much more concerned about not only consumer spending but the outlook for GDP growth.”

“Today’s report suggests that inflation is now starting to move closer to the Fed’s 2 percent target. By the end of this year we expect the headline PCE deflator to rise to 1.3 percent with the core measure coming in around its current level of 1.7 percent. We maintain our view that the next Fed rate hike will take place in December at which point it should be clear that the upward migration in inflation rates is not transitory.”