|Last week, the Bureau of Economic Analysis (BEA) released income, savings, spending, and inflation data for July. It was a mixed report. Income and savings rose, but spending was flat, and inflation remained high.
By the numbers:
- Personal income rose 1.1%. This was a surprising result because government income support related to the pandemic is ending. However, the advance child tax credit payments offset that decline in July. More encouraging was that wages and salaries rose sharply, by almost 1% in the month. This is a sign the private economy is strong. Income is almost 9% higher than it was prior to the pandemic.
- Savings also increased, after dipping each month since March. It rose almost 10% and was likely because consumers held off spending as the Delta variant surged. Since March 2020, total savings is now at almost $4.3 trillion, or more than $2.5 trillion above what Americans would have saved during that period. There is still a lot of money in bank accounts to fuel consumer spending in coming months.
- Total spending rose 0.3%, but in real terms it declined 0.1% because inflation ran 0.4% over the month. High inflation is taking a bite out of consumers’ budgets. The weakness in spending is also virus-related, as people became wearier of going out.
Inflation is at the front of everyone’s mind these days. The 0.4% increase in July was the smallest monthly increase since February, but on an annual basis it rose to 4.2%, which is the highest since October 1990. While eye-catching, the run up of inflation is leveling out a bit. We should get a better sense of where it stands in coming months once we are comparing months further removed from the initial Covid-shutdown.
Bottom line: The Delta variant surge likely impacted the economy more in August than in July, so we could see slower income and spending growth this month. Inflation, on the other hand, will likely remain high into 2022 before we see a return to more normal levels.
—Curtis Dubay, Senior Economist, U.S. Chamber of Commerce