US: Broad-based income gains, for now – Wells Fargo

Consumer data released on Friday in the United States, came in above expectations. Analysts at Wells Fargo point out that increased spending puts the third quarter PCE on track to be quite strong. The test now is whether spending will be sustained amid a resurgent virus, explained analysts. 

Key Quotes: 

“With a double digit unemployment rate, a slowing in the jobs rebound and over a million people a week still filing jobless claims, financial markets were braced for a decline in personal income in July and a sharp slowing in spending—that is not what happened. Despite expectations for a 0.2% decline, personal income increased 0.4%, a feat made more impressive by the fact that last month’s decline in income was revised to a smaller drop. Unlike the spring and early summer when transfer payments were the only source of income growth, today’s report reveals that in July, the increased income came from a variety of sources, including a third straight monthly increase in wages and salaries (up 1.4%).”

“Transfer payments were down for the third straight month falling 1.7% in July; note however that August will mark the first month since the $600 federal top-up to jobless benefits went away, so look for a sharp decline here next month.”

“Today’s report is a bell-ringer for Q3 GDP. The better-than-expected print combined with upward revisions to spending at the end of Q2 mean that Q3 is on track for a big gain. With no change to goods or services spending in July or August, the annualized growth rate would come in north of 35%. But with the virus still with us, we could still see some retrenchment in spending, particularly services which would pull that figure lower.”