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By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

Consumer Goods Spending Up Nicely in July, Services Not So Much

Disposable personal income rose by 0.3% in July, while private-sector wages and salaries rose by 0.4%. Both measures showed only negligible revisions to June data. Also released today was detail on July consumer spending. Total real consumer spending rose by 0.2%, with a -0.1% revision to the June print.

We’ve been less ebullient than the consensus opinion regarding the recent consumption data; today’s news is a case in point. Again, the headline gain was only modest, and a little less than that when revisions are factored in. And there is some disparity between services and goods details.

Consumer spending on goods was up, strongly in line with the July retail sales data. The core goods consumption measure we track, excluding motor vehicles but including restaurants (which other analysts put within services), was up a nice 0.5%, with only a negligible revision to June. However, core services spending, excluding utilities and restaurants, was up only 0.1% (0.14%, to be exact), while June’s total was revised by -0.1% (actually -0.07%), leaving only a 0.1% (0.07%) net gain from last month’s print.

As stated in our installment from August 15, retail sales—thus goods consumption—have risen nicely in May and July, while other months of this year showed only modest gains. Services consumption, meanwhile, has grown only modestly throughout the year. (See chart.) We’re not saying that consumer spending is soft. We’re saying that claims of a consumer spending upturn/acceleration are premature and myopic, focused on goods only—even then only two months out of seven—and ignoring the 60% of consumption accounted for by services. A more apt description of consumer behavior is that it’s shown steady, non-spectacular growth for a number of years.

As for the sectors excluded from the chart, spending on vehicles has sagged over the last three months and been flat for the last three years plus. Utilities spending has held mostly flat over the last two months, after reversing a March/April spike in May. Health care spending continues at a steady pace that is a bit slower than what we saw over 2016-17. None of these sectors are showing markedly different behavior from what we described for the core measures. We exclude them because of their short-term volatility, not because of any disparate movements.

Real Consumer Spending by Type
Real Consumer Spending by Type
Source: Census Bureau Analysis. As of 31 Jul 18

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

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