United States: Spending and inflation outlook – Wells Fargo
Wells Fargo Economics, led by Tom Porcelli and colleagues, expects July consumer spending to rise modestly, with nominal Personal Income up 0.3% and spending up 0.2%. They highlight fading support from tax refunds, leaving demand more reliant on income growth.
Wells Fargo Economics forecasts that July consumer spending will increase slightly, with nominal Personal Income growing by 0.3% and spending up by 0.2%. The fading support from tax refunds means demand is now more reliant on income growth. Inflation, as measured by the PCE deflator and core PCE, is expected to ease gradually, staying above the Federal Reserve's target.
Despite disappointing retail sales, which were mainly due to lower gasoline prices and a large drop in nonstore sales, excluding those distortions, control group sales were up 0.4%. The real story for markets is the fading support from tax refunds, leaving consumer spending more dependent on income growth. Nominal personal income is expected to rise 0.3% in July, and real disposable income should continue to improve if labor market conditions remain stable.
Inflation is not expected to surprise, with both PCE and core PCE expected to grow modestly, bringing the annual rates to 3.3% and 3.6% respectively.
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