Real Consumer Spending Was Flat in July. The Inflation Rate Attached to It Is 3.7%.

Households took in more money in July and did almost nothing extra with it. The Bureau of Economic Analysis release for the month, BEA 26-39, shows disposable income up 0.5% and inflation-adjusted spending up by less than a tenth of a percentage point. The difference went into saving.

The release in figures

• Personal income: up $115.1 billion, or 0.4%
• Disposable personal income: up $125.9 billion, or 0.5%
• Real disposable personal income: up 0.4%
• Personal consumption expenditures: up $36.3 billion, or 0.2%
• Real personal consumption expenditures: up less than 0.1%
• Personal saving: $712.0 billion; saving rate 3.0%

Where the spending went

The headline spending increase is a net of two large opposite moves. Outlays on services rose $86.2 billion while outlays on goods fell $49.9 billion. These are dollar figures rather than volumes, so part of the services increase reflects service prices rather than more services bought.

The inflation reading

The PCE price index rose 0.2% in July and 3.7% over the preceding twelve months. The core index, which strips out food and energy, also rose 0.2% on the month and 3.3% over twelve months. Because the headline twelve-month rate sits above the core rate, food and energy prices are adding to the total rather than subtracting from it. This is the price measure against which the Federal Reserve states its 2% inflation objective.

The saving rate

Personal saving was $712.0 billion in July, equal to 3.0% of disposable income. The saving rate is a residual: it is what is left when measured outlays are subtracted from measured after-tax income. When income growth outpaces spending growth in a month, as it did here, the rate rises by construction.

Why it matters

One month of flat real spending is not a trend, and the series is noisy. What the release does establish cleanly is the gap between two numbers people often conflate. Nominal spending grew. Spending measured in goods and services actually obtained did not. The 3.7% twelve-month price change is the wedge between them.