Dive Brief:
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After-tax personal income rose $71.6 billion or 0.4% in July, the largest gain this year, thanks to “increases in wages and salaries and personal current transfer receipts,” according to the U.S. Department of Commerce Bureau of Economic Analysis monthly income and outlay report, released Monday.
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Disposable personal income (DPI) in July increased $60.1 billion (0.4%) and personal consumption expenditures increased $42.0 billion (0.3%), according to the government's report. The DPI measurement has risen every month since February, according to Reuters.
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Consumer spending, which accounts for more than two-thirds of U.S. economic activity, climbed 0.3% in July, short of June’s upwardly revised 0.5% rise but greater than the 0.2% increase reported in May.
Dive Insight:
The spending-dependent U.S. economy needs reports like these, and healthy July income and consumption bodes well for retailers going into the third quarter and the all-important holiday shopping season.
Consumers have displayed a wariness to spend in the aftermath of the recession and a stubborn wage gap that now seems finally to be narrowing. The July report has added to rumors that the Federal Reserve may raise interest rates in an effort to keep the economy on an even footing.
The Atlanta Fed wage tracker also found earnings up 3.6% in July, a cycle high, according to Retail Metrics. The firm notes the housing market also remains solid, with July new home sales at an almost nine-year high.
Still, despite those improvements, retailers are battling a host of challenges, and there will likely be winners and losers. For example, a new focus on tech spending could crowd out apparel sales in the back-to-school period, according to Retail Metrics president Ken Perkins.
“The macroeconomic/retail environment has steadily improved in Q2 from a soft Q1. The jobs market picked up in June after a soft May. Wages are on the rise,” Perkins wrote in a Monday note to clients. "Both market and retail earnings, however, are troublesome. Retail sales [were] flat in July, coming in worse than expected.”
