EmailPersonal income increased 0.1% in June, in-line with the Briefing.com consensus expectation, but a slower pace of growth than the 0.2% increase in May. Personal spending fell 0.2%, below the consensus forecast of 0.1% growth, and weaker than the 0.1% increase in May.
Both of these data points were already incorporated in the second quarter GDP report. It is odd that the consensus was so far off in the forecast for personal spending. If there were no revisions to the April and May data, the GDP report showed personal spending falling 0.5% in June. The consensus must have assumed substantial negative revisions to the April and May data in order justify the forecast of 0.1% growth.
It seems that history is beginning to repeat itself. The lack of confidence in the economic recovery last summer resulted in three months of deteriorating consumer conditions that were highlighted by a spike in savings. That same evidence is creeping up in the June 2011 data.
The savings rate spiked from 5.0% in May to 5.4% in June. Last year, the savings rate spiked from 4.8% in March to 5.4% in April and continued to go up until June 2010. As feelings of job security weaken amid elevated initial claims levels and weak payroll growth, it would not be a shock to see the savings rate continue to rise until the economic recovery gains better footing. This could lead to weaker consumption growth rates over the next few months.
