Union And Private Sector Workers See Accelerated Compensation Growth

Income & Spending Growth

Income and spending growth is also included in the PCE report. It implies continued steady economic growth as the personal income growth was 0.4% month over month which met estimates and was the same as last month. Real personal income growth was 2.6% year over year which is up from 2.3% growth in May. That growth rate is near the middle of where it has been this cycle. The weakest point was -3.2% in December 2013 and the strongest growth was 6.6% in December 2012. This June reading is solid when you consider growth was 2.8% in June 2017. There’s nothing in the headline reading that suggests we’re about to see an economic slowdown, like the ECRI is predicting.

Q2 real consumer spending growth was 4% which suggested the June PCE report would be strong. The June report essentially unbundles the quarterly results. Consumption growth was 0.4% month over month which met estimates. The May reading was revised higher from 0.2% growth to 0.5% growth. Spending on services was up 0.6% and there was no growth in spending on durables.

On a year over year basis, real consumption growth was 2.6% in May and 2.8% in June. That’s also in between the weakest and strongest growth rates this cycle. That led the savings rate to be unchanged from last month at 6.8%. It’s still weird to see such a high savings rate as there was recently a massive shift in the rate because new income from proprietors was added to the data. The PCE report suggests the Fed shouldn’t raise rates at a quicker pace than 2017. If I was in control of policy, I would raise rates one more time in 2018 and once in 2019.

Q2 Employment Cost Index

The Q2 employment cost index is a late report because the data in April and May is very old news. However, it’s still worth reviewing because it tells us about benefit growth instead of just pay growth. This tells us about total compensation which is more important than just wages. Quarter over quarter growth was 0.6% which missed estimates for 0.7% growth and was below Q1’s growth of 0.8%. Year over year growth was 2.8% which was above Q1’s growth of 2.7%. Year over year benefits growth was up 3 tenths to 2.9% and wages and salaries growth was up one tenth to 2.8%.

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