The July personal income report was a mixed bag, implying weaker third-quarter real gross domestic product but showing remarkable resilience in private sources of income and savings after tax rebates are eliminated.

July personal income posted down 0.7%, personal consumption expenditures was up 0.2%, and core PCE prices were up 0.3% for a 2.4% gain over the year.

Income was hurt by the end of tax rebates that cut $136.6 billion from personal transfers. Without this effect, the Commerce Department said, disposable personal income was up 0.5%.

Private wages posted a $13.2 billion gain, rents were up $4.4 billion, interest and dividends spurted $18.4 billion, and proprietors’ income advanced $4.4 billion, all sound. July marked the first decrease in overall income since the 2.3% drop in August 2005 when Hurricane Katrina the Gulf Coast.

Remarkably, people kept spending in the face of lower income, especially on services, though at the smallest pace since February. However, the spending was not enough to overcome the July inflation rate. Real PCE was down 0.4%, suggesting negative consumption and a big drag on GDP growth to start the third quarter.

— Market News International

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