Following the significantly weaker-than-expected spending data, the sell-side has begun its inglorious downgrades of the exuberant hockey-stick growth expectations they all extrapolated off Q1 lows... Goldman cut from +3.3% to +3.1% and Barclays slashed Q3 GDP expectations from +2.7% to a mere +2.2%.
BOTTOM LINE: The July personal spending numbers were softer than expected, while personal income and the PCE price index were close to expectations. We reduced our Q3 GDP tracking estimate by two-tenths to +3.1%.
1. Personal income rose 0.2% in July (vs. consensus +0.3%). The core wages and salaries component increased 0.2% as well. Personal spending was considerably weaker than expected, falling 0.1% (vs. consensus +0.2%). Real spending declined 0.2% on the month. Softness was fairly broad based, evident in durable goods (-0.6%), nondurable goods (-0.2%), and services (-0.1%). Real electricity and gas utilities spending fell 7%, subtracting about a tenth off of the headline, likely due to unseasonably cool summer weather. As a result of income growing more quickly than spending, the personal saving rate moved up three-tenths to 5.7%, the highest level since late 2012. Both the headline and core PCE price index rose 0.1% on a rounded basis, in line with consensus expectations. Over the past year, the headline PCE price index increased 1.6% and the core PCE price index increased 1.5%, a still-subdued pace relative to the Fed's 2.0% target.
2. We reduced our Q3 GDP tracking estimate by two-tenths to +3.1%.
U.S. 3Q Tracking GDP Lowered to 2.2% From 2.7% at Barclays
Data on July consumer spending suggests “much softer start” to 3Q, Michael Gapen, economist at Barclays, writes in note.
Adjusted for inflation, spending last month below 2Q average
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So much for 2% GDP growth this year...