US: Inflation and personal income and spending in focus - RBS

Research Team at RBS, suggests that in June, US personal income may have risen by 0.3%, slightly better than in May.

Key Quotes

“While the headline job gain was stellar (+287,000), hourly earnings rose by just 0.1% (the smallest monthly increase since February), while the average workweek was unchanged. Thus, despite the outsized payroll rise, wages and salaries may only have advanced at a slightly faster pace in June than May.

Meanwhile, consumer spending may have advanced by 0.4%, the same as in May (though the quarterly data suggest April or May could have been revised down). The light vehicle selling rate slid in June, from 17.4 million units (SAAR) in May to 16.6 million units. However, a rise in gasoline station receipts (owing to higher prices) may have offset much of that drag. Away from those categories, spending looks to have remained fairly solid in June. Retail sales excluding autos, gasoline, and building materials (the metric most relevant for PCE) increased by 0.4% (about the same as in May). In addition, we expect a jump in air conditioning usage (reflecting unusually warm temperatures in June) may have bolstered expenditures on services (i.e. utilities).

On the inflation front, we look for the core PCE deflator to have risen by 0.1% in June. The core CPI rose 0.17% (unrounded) in the month, slightly less than we had expected. Moreover, the downside surprises were concentrated in categories that feed through to the core PCE (e.g. used cars, new cars, apparel). Thus, the expected contribution from the core CPI to the core PCE looks to have been only 0.7 percentage points.

The contribution from the PPI-sourced components in June may have been just under 0.04%. Thus, we look for the core PCE deflator to have risen in June by 0.116% unrounded, which would be 0.05 percentage points less than the month/month change in the core CPI. Assuming no revisions to the prior month’s data, our forecast would leave the year/year core PCE inflation rate steady at 1.6%. Overall, we look for the headline PCE deflator to have risen by 0.2%, boosted by firmer energy and food prices.”