Spending on gasoline plunges due to plunge in price. “Real” spending on durable goods, amazingly, jumps for 2nd month. Services spending rises but stuck below pre-pandemic trend.
By Wolf Richter for WOLF STREET.
Something interesting happened in July to inflation-adjusted consumer income and spending. Remember when President Biden said that inflation was “zero percent” when the Consumer Price Index data came out in mid-August? Obviously, neither inflation nor CPI were 0%. CPI jumped by 8.5% in July 2022, compared to July 2021, which is how we generally discuss inflation. But the plunge in gasoline prices caused CPI to not change in July from June, so 0% change month-to-month, but 8.5% change year-over-year.
So today, the Bureau of Economic Analysis reported consumer income and spending in July. Adjusted for inflation (= “real”) by the PCE inflation measure, in July from June, the change in the “seasonally adjusted annual rates” were:
- Real personal income from all sources: +0.3%
- Real personal income without government transfer payments: +0.4%
- Real personal spending: +0.2%
Not adjusted for inflation:
Total consumer spending without adjustment for inflation increased by $23.7 billion in July from June (increase in the seasonally adjusted annual rate of spending). Spending fell in three categories, notably on gasoline due to the plunge in gasoline prices, and rose in the remaining categories:
Spending fell in these three categories, in July from June, without inflation adjustment:
- Gasoline: -$55.9 billion, as the price of gasoline has plunged
- Financial services and insurance: -$20.1 billion
- Transportation services: -$0.5 billion as airfares come down a little.
Spending rose in the remaining categories in July from June, without inflation adjustment:
- Housing and utilities: +$23.4 billion
- Other services: +$13.7 billion
- Other nondurable goods: +$11.0 billion
- Final expenditures of NPISH (Non-Profit Institutions Serving Households): +$10.8 billion
- Recreational goods and vehicles: +$9.7 billion
- Motor vehicles and parts: +$8.4 billion
- Furnishings and durable household equipment: +$7.3 billion
- Clothing and footwear: +$4.3 billion
- Food and beverages: +$3.6 billion
- Healthcare: +$2.8 billion
- Other durable goods: +$2.0 billion
- Food services and accommodations: +$1.7 billion
- Recreation services: +$1.4 billion.
Adjusted for inflation.
The BEA adjusts consumer income and spending based on its PCE inflation measure, not the CPI inflation measure. Its July PCE price index dipped by 0.1% in July from June, on a 4.8% plunge in energy prices, and was up 6.3% year-over-year.
In other words, inflation adjustments had little impact overall on income and spending growth in July from June, though they did impact year-over-year growth.
Income, adjusted for PCE inflation, rose.
“Real” personal income from all sources rose 0.3% in July from June, undoing the dip in the prior month, and is flat with April (purple in the chart below).
This includes income from wages and salaries, dividends, interest, rentals, farms, businesses, and government transfer payments such as stimulus, Social Security, unemployment, welfare, etc., but does not include capital gains/losses.
Compared to July 2021, real income fell 1.6%; compared to July 2020, it fell 2.2%; compared to July 2019, it was up 5.9%. It dipped below pre-pandemic trend at the beginning of this year and has remained there.
Real personal income without transfer payments rose 0.4% in July from June, eking out a new record. Compared to a year ago, it rose 1.3%; compared to two years ago, it rose 6.2%; compared to July 2019, it rose 4.9%. But it remains below pre-pandemic trend:
Per-capita “real” disposable income rose. Boiled down to the per-person level, and based on what’s left over after taxes, per-capita “real” disposable income rose 0.2% in June, seasonally adjusted annual rate, but was down 4.0% from July 2021, and was down 6.6% from July 2020, and up just 1.6% from July 2019 (in “2012 dollars” to adjust for inflation). It has fallen far below pre-pandemic trend (green line):
“Real” spending on goods and services rose, eking out a new record.
Consumer spending on goods and services in July, adjusted for inflation, rose 0.2% from June, was up 2.2% from July 2021, up 9.9% from July 2020, and up 5.1% from July 2019. It remains below the pre-pandemic trend (green line):
“Real” spending on non-durable goods continues to revert to trend after pandemic bubble. Inflation-adjusted spending on food, fuel, household supplies, and other nondurable goods fell in July by 0.5% from June, which includes the plunge in spending on gasoline due to the plunge in prices. From July 2021: -1.3%. But from July 2020: +5.2%; and from July 2019: +9.4%. This spending continues to revert from the stimulus spending binge toward pre-pandemic trend (green line).
“Real” spending on durable goods, amazingly, jumped again. Americans just don’t want to slow down their purchases of stuff, it seems. Inflation-adjusted spending on vehicles, appliances, electronics, furniture, and other durable goods jumped by 1.5% in July from June, and the second month in a row of increases, and was up by 3.4% from July 2021, up 10.6% from July 2020, and up 24.7% from July 2019.
These are big increases (inflation adjusted!), as Americans have been refusing to throttle back this durable-goods spending to pre-pandemic trend; just not happening, though everyone, including me, thought it would (green line).
Spending on services, adjusted for inflation, ticked up. “Real” spending on services – healthcare, housing, education, travel, sports events, haircuts, repairs, subscriptions, streaming, etc. – rose by 0.2% in July from June, by 3.3% from July 2021, by 11.4% from July 2020, and by just 1.0% from July 2019.
It remains sharply below pre-pandemic trends, having run roughly in parallel with pre-pandemic trend since March without catching up.
The share of spending on services remained at 61.9% of total spending in July, unchanged for the past three months, and remains below the share of around 64% during normal times, while spending on durable goods and nondurable goods still run above pre-pandemic trends.
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