Personal consumption spending in July was high. Very high. In fact, people spent considerably more than they earned, so the personal savings rate in July was negative: -0.6% of disposable income, to be precise. That means that, for only the second time in the past several decades (the first was in October 2001), households as a group were reducing their net savings position (abstracting from capital gains and losses). From the Commerce Department this morning:
Personal income increased $29.3 billion, or 0.3 percent, and disposable personal income (DPI) increased $27.2 billion, or 0.3 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $85.7 billion, or 1.0 percent.
…Personal saving — DPI less personal outlays — was a negative $58.8 billion in July, in contrast to a positive $0.9 billion in June. The negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods.
For fun, here’s a chart showing the US savings rate (3 month moving average) over the past 20 years.
The current rate of spending growth by consumers is unsustainable without substantial and immediate increases in income growth, or continued substantial increases in household wealth due to asset appreciation. Since it’s hard to see where an increase in income growth rates will come from right now, and it seems likely that housing price appreciation is nearing a peak in many markets, my guess is that the growth of consumer spending will have to slow.