The monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is one of the most important regular economic release we see monthly, since each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of its quarter's GDP by itself.  Moreover, this report also computes the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated, and also reports monthly personal income data, disposable personal income, which is income after taxes, and our monthly national savings rate.   However, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, the figure are seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much income and spending would change over a year if July's change in seasonally adjusted income and spending were extrapolated over an entire year.   However, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from June to July..

Thus, when the opening line of the press release for the July report tell us "Personal income increased $70.5 billion (0.4 percent) in July", they mean that the annualized figure for seasonally adjusted personal income in July, $20,042.7 billion, was $70.5 billion, or somewhat less than 0.4% greater than the annualized personal income figure of $19,972.2 billion extrapolated for June; the actual, unadjusted change in national personal income from June to July, which is an order of magnitude lower, is not given. At the same time, annualized disposable personal income, which is income after taxes, rose by more than 0.2%, from an annual rate of $17,841.6 billion in June to an annual rate of $17,881.5 billion in July. The monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized.  In July, the reasons for the $70.5 billion annual rate of increase in personal income were an annualized $125.5 billion increase in wages and salaries and an annualized $34.4 billion increase in non-farm business proprietors income, which were partially offset by an annualized $84.1 billion decrease in personal current transfer receipts from government programs…

For the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at $267.6 billion rate, or by 1.9% from June, as the annual rate of PCE rose from $13,931.9 billion in June to $14,199.5 billion in July.  June's PCE was revised from $13,851.2 billion annually to $13,931.9 billion, while PCE for the months going back to April were also revised as well, all of which were already included in the revised 2nd estimate of 2nd quarter GDP which we reviewed earlier (data in this report, although usually released a business day later than the GDP release, is concurrent with the GDP data).  Total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $270.6 billion to $14,694.8 billion annually in July, which left total personal savings, which is disposable personal income less total outlays, at a $3,186.7 billion annual rate in July, down from the revised $3,417.4 billion in annualized personal savings in June. As a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 17.8% in July from the revised June savings rate of 19.2%.

As you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is included in Table 9 in the pdf for this report...that index rose from 110.791 in June to 111.146 in July, a month over month inflation rate that's statistically 0.3204%, which BEA reports as an increase of 0.3 percent, following the rounded increase of 0.5 percent in the PCE price index reported for June...note that when the PCE price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in chained 2012 dollars, which are the means that the BEA uses to compare the real goods and services produced in one month or one quarter to the real goods and services produced in another. That result is shown in table 7 of the PDF, where we see that July's chained dollar consumption total works out to 12,778.2 billion annually, 1.5949% more than June's 12,577.6 billion, a difference in real PCE that the BEA reports as a 1.6% increase for July...

However, to estimate the impact of the change in PCE on the change in GDP, that month over month change in PCE doesn't help us much, since GDP is reported quarterly. Thus we have to compare July's real PCE to the real PCE of the 3 months of the second quarter. While this report shows real PCE for those three months at an annual rate monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 2nd quarter was represented by 11,819.6 billion in chained 2012 dollars (note, that's the same as was shown in table 3 of the pdf for the 2nd quarter GDP report). When we compare July's inflation adjusted PCE of 12,778.2 billion to the 2nd quarter’s real PCE of 11,819.6 billion, we find that July’s real PCE has grown at a 36.605% annual rate from the 2nd quarter.  That means that even if July’s real PCE growth does not improve from the July level during August and September, growth in PCE would still add 25.03 percentage points to the growth rate of 3rd quarter GDP...  

(Note: the above was excerpted from my weekly economic synopsis at Marketwatch 666)