US personal incomes jump in August, but spending subdued

Americans reined in their spending at the end of the summer despite a jump in disposable income with economists pointing to the drag on sentiment from trade war worries.

According to the Department of Commerce, personal incomes in the US rose at a 0.4% month-on-month clip in August (consensus: 0.4%) following the prior month's muted 0.1% increase.

Once taxes are taken into account, consumers' so-called disposable income jumped by 0.5% versus July following an increase of 0.3% during the previous month.

Personal consumption expenditures on the other hand slowed to a month-on-month pace of only 0.1% (consensus: 0.3%) after growth of 0.5% in July.

Instead, Americans topped up their savings, with personal savings as a proportion of disposable income rising back from 7.8% to 8.1%.

Price pressures meanwhile were steady, with the year-on-year rate of change in the PCE price deflator unchanged from the month before at 1.4%, although at the core level it picked up from 1.7% to 1.8%.

As an aside, the rate of growth in personal incomes for June was revised lower from a preliminary reading of 0.5% to 0.4% and July's increase in personal consumption expenditures was marked down by a tenth of a percentage point from 0.6% to 0.5%.

Commenting on Friday's data, Ian Shepherdson at Pantheon Macroeconomics said the latest figures would prompt analysts to mark down their forecasts for third quarter growth in consumer outlays substantially, with him having lowered his own projection from 3.6% to 2.9%, implying a 0.5% "downshift" in tracking models for US gross domestic product.

"[...] he bigger picture here perhaps is that the broader trade war is making people nervous. Either way, the consumer boom is coming to an end, rapidly," he said.

"The squeeze on real incomes implied by the tariffs means we look for spending to rise only 2-to-2.5% in Q4, with a further slowing in the first half of next year."