July 2019 National Economic Outlook

Much Better June Job Growth; Incomes and Consumer Spending Remain Solid

Executive Summary

After a weak May jobs report, the U.S. labor market rebounded in June, with job gains of 224,000. The private sector added 191,000 jobs, while government employment rose by 33,000.

  • May job growth was revised down to 72,000, from 75,000, and April job growth to 216,000, from 224,000. Job growth has averaged 172,000 per month so far this year, down from 223,000 last year, but still well above the pace needed to keep up with underlying growth in the labor force. 
  • The unemployment rate rose to 3.7% in June, from 3.6% in April and May, which was a 49-year low. However, the increase in the unemployment rate came from an increase in the labor force of 335,000 over the month, as more people looked for work, drawn in by rising wages and the tight job market. 
  • Wage growth remains solid with the tight labor market, but has not accelerated in 2019. Year-over-year growth in wages was 3.1% for a second straight month in June, down from a cyclical peak of 3.4% in February.

Personal income rose a solid 0.5% in May, unadjusted for inflation, besting expectations for a 0.3% increase. Most of the increase came from higher interest income; labor market income was up 0.2% in May. Personal income rose 0.5% in April (unrevised). After-tax income also rose 0.5% in May. Adjusted for inflation and taxes, personal income was up 0.3% in May. Inflation-adjusted disposable income was up 2.3% in May from one year earlier.

Consumer spending rose 0.4% in May before inflation, following a 0.6% increase in April. There was a big jump in durable goods spending in May (up 1.7%), while nondurable goods spending fell slightly. Services spending rose 0.4%.

With spending growth slightly softer than income growth, the savings rate rose to 6.2% in May, from 6.1% in April. Households are not overextended; the savings rate is well above where it was heading into the Great Recession.

Inflation-adjusted spending rose 0.2% in May, and was up 2.7% from one year earlier. Consumers remain in good shape in mid-2019. With the economy adding jobs and a tight labor market boosting wages, household incomes are rising. This, in turn, is supporting commensurate gains in spending. Consumer spending accounts for about two-thirds of U.S. GDP.

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July National Economic Outlook

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