U.S. Q3 GDP tracking 2.4% after August personal income and spending

U.S. personal income rose 0.3% m/m in August, a bit less than expected, as July data were revised higher (0.5% m/m, initial: 0.4%). Incomes gains were driven by wages and salaries, which grew a solid 0.5% m/m (previous: 0.6%). Personal spending rose more than expected (consensus: 0.3%), up 0.4% on the month. 

Slightly slower income growth and more robust spending led the savings rate to decline one-tenth to 4.6%. Within the details of this morning's report, consumption trends look solid. Real personal spending also grew faster than expected in August (0.4%) and was revised higher in July (0.3%, initial: 0.2%). Real goods consumption was up 0.8% on the month (previous: 0.7%) and services spending grew 0.3% (previous: 0.1%). The 3-month annualized rate of real consumption growth now stands at 3.5%, consistent with a healthy US consumer in Q3.

On the prices side of this morning's report, August PCE price inflation came in line with expectations. Total PCE was flat on the month (0.004% unrounded), as a small rise in core prices was offset by a fall in the non-core components. Core PCE increased 0.1% m/m (0.110% unrounded), in line with the soft trend since the start of the year. Food prices rose modestly at 0.2% m/m; over the past three months the monthly rate of food inflation has reversed the downward trend established for much of 2015. 

"We expect core PCE to increase at a moderate pace from here, reaching 1.7% y/y (Q4/Q4) by the end of 2016. As core prices strengthen somewhat and the drag from declining energy prices wanes, we expect headline PCE also to edge higher to 1.9% y/y (Q4/Q4) by the end of 2016", estimates Barclays.

Stronger-than-expected growth in real personal spending in August and upward revisions to prior months' data suggest a faster pace of consumption growth in Q3 than previously estimated. This boosted our tracking estimate of Q3 PCE growth three-tenths to 3.5%, bringing their Q3 GDP tracking estimate to 2.4%, states Barclays.