RBC economists Tom Porcelli and.......>

US DATA REACT: RBC economists Tom Porcelli and Jacob Oubina said the June

personal income and spending report "was relatively uneventful, as it largely

represents a filling in of the details for the Q2 GDP report released last

Friday." They added that they "had been promoting the idea that the percent of

income that US households were savings was quite elevated relative to the other

economic fundamentals, and indeed, our savings models in recent years was, at

the extreme, nearly 3 percentage points below the prevailing saving rate and

theoretically, one could argue that in the wake of the financial crisis, and

with interest rates near historic low levels, folks felt a need to save more

(general caution plus your expected return on a Treasury is now 2% vs 4%)." 

- The RBC economists said "effectively," the personal income/spending report "is

suggesting that household frugality, which has dominated this expansion could

very well be coming to an end." They added, "This could prove to be a critical

juncture not only for economic growth (lower savings means more spending!), but

for what the Fed thinks about the neutral rate of interest (if this cyclical

'headwind' is indeed fading)."