Consumer Spending Rises, Q2 GDP Growth Narrows: August 26 – 30

Consumers have been a bright spot for the U.S. economy, but their outlook may be tenuous. Here are the five things we learned from U.S. economic data released during the week ending August 30.

#1Consumers’ spending spree continued in July. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis during the month, up from June’s 0.2 percent advance and matching the increases for both April and May. Spending rose for goods by 0.8 percent, with solid gains for both durable (+1.1 percent) and nondurable goods (+0.6 percent). Services spending grew 0.3 percent. Without adjustments for inflation, nominal PCE rose 0.6 percent. The increased spending outpaced gains in nominal personal income (+0.1 percent), nominal disposable income (+0.3 percent), and real disposable income (+0.1 percent). As a result, the savings rate narrowed by 3/10ths of a percentage point to +7.7 percent. Over the past year, personal spending has risen 2.7 percent as real disposable income advanced 3.0 percent.

#2Q2 GDP growth was smaller than previously believed. The Bureau of Economic Analysis‘ second estimate of Q2 2019 Gross Domestic Product (GDP) has the U.S. economy growing at a seasonally adjusted annualized rate (SAAR) of +2.0 percent, down from 2.1 percent gain reported a month ago. The downward revision was the product of lower than previously estimated levels of state/local government spending, exports, private inventory accumulation, and fixed residential investment. Counterbalancing those revisions was a higher than previously reported estimate for consumer spending. In fact, consumers were by far the most significant positive contributor to Q2 GDP growth. The same report finds corporate profits rose 5.3 percent during the quarter to an annualized $2.113 trillion. The BEA will revise its Q2 estimates of both GDP and corporate profits again in late September.

#3Economic growth also was modest in July. The Chicago Fed National Activity Index (CFNAI) plummeted by 39-basis points during the month to a reading of -0.36. Only 26 of the weighted index’s 85 components made a positive contribution to the CFNAI as only 30 improved from their June marks. All four major categories of index components made negative contributions: production (-25 basis points), personal consumption/housing (-6 basis points), sales/orders/inventories (-5 basis points), employment (-1 basis point). A bright spot is the 16-basis point improvement for the CFNAI’s three-moving average, growing June’s -0.30 reading to -0.16 in July. The moving average’s reading, however, is indicative of below-average economic growth.

#4Aircraft orders boosted durable goods orders in July. The Census Bureau estimates new orders for manufactured goods jumped 2.1 percent during the month to a seasonally adjusted $250.4 billion, following a 1.8 percent gain in June. Much of the increase came from the 7.0 percent surge in orders for transportation goods, with substantial monthly gains in orders for civilian aircraft (+47.8 percent), defense aircraft (+34.4 percent), and motor vehicles (+0.5 percent). Net of transportation goods, durable goods fell 0.4 percent in July, reversing a 0.8 percent increase during the prior month. Rising were new orders for electrical equipment/appliances (+1.1 percent) and computers/electronics (+0.2 percent). Orders fell for primary metals (-1.0 percent), fabricated metals (-0.9 percent), and machinery (-0.6 percent).

#5Consumer sentiment waned in August. The University of Michigan’s Index of Consumer Sentiment suffered its largest single-month drop in nearly seven years with an 8.6 point decline to a seasonally adjusted 89.8 (1966Q1=100). Whereas the measure tracking current sentiment decreased by 5.4 points to 105.3, it was the huge drop in longer-term optimism that pulled down the headline index. The expectations index plummeted by 10.6 points to 79.9. The press release notes that trade tariffs were the chief cause of weakening confidence, with one in three survey respondents “spontaneously” noting the issue in their comments. Those concerned about tariffs were more likely to “voice higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes.”

The Consumer Confidence from the Conference Board slipped by a more modest 7/10ths of a point to a seasonally adjusted 135.1 (1985=100). The present conditions rose to a nearly 19-year high at 177.2 (up 6.3 points versus July 2019) while the expectations index shed 5.4 points to 107.0. A robust 42.0 percent of survey respondents described current business conditions as “good,” while 51.2 percent said that jobs were “plentiful.” The press release did warn that “if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 24, 2019, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; Unchanged vs. the same week a year earlier). 4-week moving average: 214,500 (-0.1% vs. the same week a year earlier).
Pending Home Sales (July 2019, Index (2001=100), seasonally adjusted): 105.6 (-2.5% vs. June 2019, -0.3% vs. July 2018).
FHFA House Price Index (June 2019, Purchase-Only Index, seasonally adjusted): +0.2% vs. May 2019, +4.8%. vs. June 2018.
Case-Shiller Home Price Index (June 2019, 20-City Index, seasonally adjusted): Unchanged vs. May 2019, +2.1% vs. June 2018.

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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