Incomes up, spending up, and inflation flattening. Keep this ROLLIN'!

Lots of good economic news all around this week, punctuated by what was in the income and spending report that was released on Friday.

Jolly but cautious #consumers in June
More spending on goods
More discretion & (some) pullback on services

✅cars
✅gas
✅finance & insurance
✅recreation svc
✅furniture
✅clothing
✅healthcare
❌food & beverage
❌housing & utilities
❌food svc & accommodation
❌transportation pic.twitter.com/5AdEkeFAnD

— Gregory Daco (@GregDaco) July 28, 2023

🇺🇸The soft-landing chart

Household disposable income has risen in 11 of the last 12 months, and while it's well below the pre-Covid trend it remains supported by a resilient labor market and easing inflation.

As a result consumers spending is in line with its pre-Covid trend. pic.twitter.com/Ka5YOOwI6v

— Gregory Daco (@GregDaco) July 28, 2023

The income and spending numbers are good on their own, but the financial media centered on the inflation figures in that report, because they wanted hints on what might happen with future monetary policy. And they found nothing but good signs on that front.

Annual U.S. inflation rose at its slowest pace in more than two years in June, with underlying price pressures receding, a trend that, if sustained, could push the Federal Reserve closer to ending its fastest interest rate hiking cycle since the 1980s.

The improving inflation environment was reinforced by other data on Friday showing labor costs posted their smallest increase in two years in the second quarter as wage growth cooled. It mirrored reports this month showing the economy shifting into disinflation mode, with consumer prices moderating sharply in June and producer inflation muted.....

The personal consumption expenditures (PCE) price index increased 0.2% last month after edging up 0.1% in May, the Commerce Department said. Food prices dipped 0.1% while the cost of energy products increased 0.6%. In the 12 months through June, the PCE price index advanced 3.0%. That was the smallest annual gain since March 2021 and followed a 3.8% rise in May.

Excluding the volatile food and energy components, the PCE price index gained 0.2% after rising 0.3% in the prior month. That lowered the year-on-year increase in the so-called core PCE price index to 4.1%, the smallest advance since September 2021. The annual core PCE price index climbed 4.6% in May.

Economists polled by Reuters had forecast the core PCE price index would gain 0.2% and rise 4.2% on a year-on-year basis. They calculated that the "super core" increased 4.1% on a year-on-year basis after rising 4.7% in May. This measure of services less housing is being closely monitored by policymakers to gauge progress in the inflation fight.

Seems like a good situation to me. And while growth in the employment cost index declined in Q2 2023, wages and salaries were still up 1.0% for those 3 months, and increased 1.7% more than inflation over the last 12 months, clawing back half the losses suffered as inflation peaked in mid-2022.

Also note that this is just wages, salaries. It leaves out the stimulus checks and all the other COVID-related aids in 2020 and 2021 that added to Americans' checkbooks and allowed them to pay off some of their debts.

So with inflation down to a 3-4% annual rate, wage growth exceeding it, consumer spending staying strong but not frenzied, and unemployment staying low, what's the problem? Seems like Bidenomics is working on almost all fronts, but the Fed for some reason wants to blunt this by keeping interest rates at levels that predate 9/11.

Hopefully the Fed makes a long-overdue realization, and at the very least stops hiking for the rest of this year (in reality, they should be moving rates at least back toward the 4% PCE inflation level). US consumers and real job creators (aka NOT corporations) have foiled the Fed's plan for a recession so far in 2023, and it'll likely take some kind of outside shock to cause any sort of significant decline for the rest of the year.

Works for me.