US: Personal spending remained solid in June - Wells Fargo

According to analysts from Wells Fargo, the rise of 0.4% in Personal spending in June shows that it remains solid buy warned that real consumer spending could return to a more modest growth rate during the third quarter.

Key Quotes:

“Personal income rose 0.2 percent in June, following a 0.2 percent reading in May. Personal spending remained solid at 0.4 percent or 0.3 percent in real terms. Disposable personal income appears to be slowing.”

“The rate of saving remains elevated for this stage of the business cycle and suggests that consumers continue to remain cautious with their spending habits.”

“After controlling for inflation, real spending rose 0.3 percent while May’s reading was revised to a 0.2 percent gain. The softer readings in May and June implies slightly less real consumer spending momentum going into the third quarter. We expect real consumer spending to return to a more modest growth rate of 2.6 percent in the third quarter.”

“Given that job gains and income growth continue to hold up well, we still see consumer spending serving as the key support to GDP growth.”

“Between last week’s soft second quarter GDP report and the fact that headline inflation is still a ways from the Fed’s target we do not expect the economic data to favor another rate hike at the September Fed meeting. Looking ahead, we expect the PCE deflator to end this year around 1.5 percent on a year-over-year basis with real GDP growth in the 2.0 percent range. Should both of these forecasts hold, we believe that the Fed will hike rates at the December FOMC meeting.”