While higher wages and a new round of government cash helped boost U.S. household income more than expected last month, consumers resisted a comparable spending spree—perhaps another signal that a resurgence of virus cases has curbed enthusiasm for venturing out.
Personal income for July increased 1.1% from June, according to a monthly report released Friday by the Bureau of Economic Analysis, as much as five times the pace some economists expected and far more than the 0.2% increase in June. The first round of expanded child tax credit payments—which means up to $300 per child per month for eligible families—drove much of the increase, but people were also earning more in their paychecks, analysts said, with overall wage income up 1% in July, the most since November.
More money in the bank didn’t translate to an equal jump in spending, which rose 0.3% in July. Consumers continued to shift their spending more toward activities rather than goods—a sign of looser pandemic restrictions—but even so, spending on activities and services decelerated, growing at the slowest pace since February.
“Consumers have the money, they are just not spending that quickly,” Wells Fargo economists wrote in a commentary. “There is no telling for sure whether this is due to inflation concerns or worries about the Delta variant.”
Consumers may be increasingly wary of travel and leisure activities as the prevalence of the delta variant fuels rising cases of coronavirus, but that won’t bring about a complete retreat, economists said. U.S. households have accumulated $3 trillion during the pandemic (the savings rate in July increased to 9.6% from 8.8%), according to ING, leaving the economy with more than enough to power consumer spending in the months ahead, even after expanded federal unemployment benefits expire Sept. 6.
The Personal Consumption Expenditures Price Index—the Federal Reserve’s preferred measure of inflation—increased 3.6% in the year through July, excluding food and energy, meaning the so-called core inflation rate was as high as its been since 1991 for the second straight month.
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