(By Mani) Once again, personal income was higher than personal consumption expenditures, pushing the saving rate to the highest level since June 2011. This is not what the Fed wants, but they cannot do much to prevent it.
Personal income from wages and salaries improved by 0.5 percent during the month after two very weak months in April and May when this source of income barely moved, growing by 0.0 and 0.1 percent, respectively.
Though this is good news for the future, it provides little help to the U.S. economy as the saving rate increased to 4.4 percent of disposable personal income, the highest rate since June 2011 and 0.4 percentage points higher than in May.
"Thus, the Federal Reserve's attempts to push the U.S. consumer to consume rather than to save are still hampered by uncertainty in the future of the U.S. economy," Wells Fargo economist Eugenio Aleman wrote in a note to clients.
The fact that U.S. consumers continue to increase their rate of saving rather than consume in this low interest rate environment continues to defy economic theory. The best explanation for this behavior is that individuals are hoarding cash to continue to build a protective layer in case the economy and their personal situation turn more negative.
The increase in the saving rate was due to a weak spending performance as consumers decided to pocket all of the increase in income received during the month.
Personal spending was revised down in May, dropping by 0.1 percent while it remained flat in June. Spending on goods dropped by 0.4 percent during the month.
Spending on durable goods dropped by 0.1 percent, an improvement from the drop of 0.4 percent in May, while spending on nondurable goods dropped by 0.6 percent, also an improvement to the 0.9 percent drop during the previous month.
These personal consumption results help explain the weak performance of the U.S. economy during the second quarter of 2012.
"On a positive note, consumers may be able to unload these savings if conditions improve during the holiday season. Let's hope that this is the case," Aleman said.
Meanwhile, real disposable personal income weakened in June, growing by 0.3 percent compared to 0.5 percent growth in May.
"One of the reasons why real disposable personal income was lower in June than in May, even though nominal disposable personal income was higher, was that the PCE deflator was up 0.1 percent in June compared to a drop of 0.2 percent in May," Aleman added.