Merk Investments: Personal Income/Spending: August 2008
Personal income for the month of August increased 0.5%, while personal disposable
income declined -0.9%. Personal consumption advanced 0.1%, while consumption adjusted
for inflation was flat for the month in contrast with the -0.5% decline recorded in August.
On a real basis, purchases of durable goods declined -2.8%, non-durables climbed 3.9%
and services inched forward at 0.7%.
The inflation component of the report indicated that the PCE deflator advanced 4.5% y/y in
August with the core measure increasing 2.6% y/y and 0.2% m/m.
Based on the data the mid-quarter estimate of personal spending implies that overall
personal consumption for the third quarter should declined just under -1.0%. Even with the
recent easing in the cost of imported oil, in real terms personal consumption is on pace to
see the first quarter of negative consumption in nearly two decades. The consumer remains
stressed.
The core measure of inflation did advance to 2.6%, which is well beyond the upper end of
the Fed’s implied target of 1.0-2.0%. Given recent events this data may be overlooked.
However, the increase in the money supply as indicated in the St. Louis Fed adjusted
monetary base is some importance. Should the increase reflect an response by the Fed to
recent events then we would expect to see a correction in the coming weeks. However,
should this be part of the larger response to the credit crisis and the coming economic
fallout, then the risk for inflation could be sharply to the upside over the coming months.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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