Personal disposable incomes rose 0.4% in June, but spending remained almost unchanged (falling nearly 0.1%) as consumers continued to grow more cautious in their spending decisions. The data was not much changed after adjusting for inflation, with real disposable incomes rising 0.3% during the month and spending near the zero line. This is consistent with the kind of spending patterns we saw in May, which were not helped much by falling prices at the pump.
The gains in personal disposable income were driven by a healthy $31.9 billion gain in wage and salaries, which increased only $9.7 billion last month. The gains were broad-based, across both goods and service producing industries. We also saw a large uptick in social security payments; this has more to do with an increase in the number of retirees than an improving jobs picture. The 1947 vintage of baby boomers, in particular, is turning 65 and retiring to get access to social security benefits this year. This creates other challenges for the broader economy and the budget deficit going forward.
Consumer spending was lackluster, with declines in spending on big-ticket durables abating a little and spending on services decreasing slightly. We also saw spending on non-durable goods fall, which can be traced to both the rise in retirees and increased spending on summer clothing earlier in the year when temperatures were unusually warm. Drought-like heat was also a problem for retailers in June, as many consumers opted to stay home in their air conditioning or visit their local pools instead of going shopping during the month.
The saving rate jumped to 4.4% in June from 4%. This means that we either have some cushion to carry spending over the summer, or that the cautions we have seen permeate other aspects of the economy are also hitting the U.S. consumer. I fear the latter, given the recent deterioration in consumer attitudes particularly about our future.
Bottom Line: Saving is important to a society with a saving deficit. We must see that saving redeployed into investments in our future, however, if we hope to keep the recovery from stalling out. There are some, but not enough signs that is happening. This will prompt the Federal Reserve to stimulate further, but probably not pull the trigger on QE3 until September.