Personal income and consumption is one of the two big monthly reports on the state of the average American, in addition to the jobs report. In the past several months, I have looked for a rebound from April and May’s “Liberation Day” aftermath of a cutback in spending. In July we did get a rebound, and this morning indicated that it has continued. 

Nominally income rose 0.4% and spending 0.6%. Since the PCE inflation gauge rose 0.3%, real income increased 0.1% and real spending rose 0.3%. As a result, real spending is at new record high, while real income is only below its peak in April:

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[Note: with the exception of the personal saving rate, and one YoY graph, all of the data in the below graphs is normed to 100 as of just before the pandemic.]

Since real spending on services (blue, right scale) rarely turns down, even in recessions, the focus is on goods (red, left scale). In August they rose a strong 0.7%, also to a new record high:

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Additionally, there is authority for the fact that spending on durable goods usually turns down before spending on non-durable goods. In July, this rose 0.9%, but the absolute level remained below that of March and last December:

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While this is positive, the three month moving average (which unfortunately I can’t show with FRED tools) has been almost completely stagnant since April, so we may still be topping here.

Incidentally, while I was traveling yesterday, manufacturing new orders and core capital goods orders were both reported, and these were also very positive, with core capital goods orders hitting a new near 3 year high:

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This is a major reason why no recession appears imminent, although I would very much like to see what this statistic looks like without the potentially “bubble”-like capital goods spending on AI data centers.

Next, here is the personal savings rate. I follow this because just before and going into recessions it tends to turn up as consumers get more cautious. This month the Census Bureau made major revisions going back three years. As a result, what last month looked like a “typical reading of 4.4%, along with many previous months, was revised substantially higher. Thus the 4.6% rewind for August was not a significant increase, but rather a significant *decrease* from readings in the past year:

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A decline in savings is typically a bullish reading for the present, indicating consumer confidence, but when near new lows is also a sign that consumers may be stretching themselves too thin. Since the revisions may be due to the income side of the equation, or the spending side, or both, I will have to take a deeper look at each before commenting in more detail.

Finally, let’s take a look at two coincident indicators from this report which the NBER pays close attention to in dating recessions. First, here is real income less government transfers:

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This was unchanged from July, and further is only 0.2% above its March and June levels, as well as below April’s (blue, right scale). On a YoY basis (red, left scale) the decelerating trend dating back almost three years has continued. Should this trend persist several more months, that would be recessionary.

Second, here is real manufacturing and trade industries sales, which is delayed one month and so if for July. This rose 0.6% for the month to a new all time high:

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In summary, this was mainly a positive report, but with several yellow flags. Real personal income and spending both rose, one to a new record. Real sales (delayed one month) also made a new high. This confirms the recent rebound shown in capital goods orders, as well as the Regional Fed new orders reports. This is all good.

But, there are several cautionary elements. In addition to the substantial backward revisions, the three month average on durable goods spending may be on the cusp of rolling over, and as mentioned just above, real income less government transfers has essentially flatlined since March.

A tariff-triggered recession would likely be led by a decline in purchases of consumer durable goods, which will be updated in the next two weeks. Here’s what it looks like currently:

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In addition a to the ISM reports and jobs report which will be released next week, this is the next big item I will be looking for.

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