A Massive Decline: July 27 – 31

GDP erased five years of gains during Q2. Here are the five things we learned from U.S. economic data released during the week ending July 31.

The U.S. economy contracted sharply during Q2. The Gross Domestic Product shrank 32.9 percent on a seasonally adjusted annualized basis during April, May, and June. Q2’s historical decline followed Q1’s 5.0 percent drop in the Bureau of Economic Analysis’ data series, leaving GDP down 9.5 percent from a year earlier and putting the size of the U.S. economy of early 2015. Falling consumption was by far the biggest drag on Q2 economic activity, costing 25.05 percentage points in GDP growth. Also pulling down GDP were nonresidential fixed investment (-538-basis points of GDP growth), the change in private inventories (-398-basis points), and residential fixed investment (-176-basis points). Making positive contributions to Q2 GDP were government expenditures (adding 82-basis points to GDP as Federal government spending rose) and net exports (+ 68-basis points as both export and import activity slowed sharply). The BEA will revise its Q2 GDP data twice over the next two months.

While personal spending surged in June… The Census Bureau tells us that “real” personal consumption expenditures (PCE) rose 5.2 percent during the month, following May’s 8.4 percent advance. Spending on goods soared 5.7 percent, split by advances for durable and nondurable goods of 8.8 percent and 4.1 percent, respectively. There was a notable increase in spending on apparel and medical services, and at restaurants/bars. Expenditures on services increased by 5.0 percent. Even with May’s and June’s improvements, Q2 personal spending was down a startling 34.6 percent on an annualized basis from the prior quarter. Falling were nominal personal income (-1.1 percent), nominal disposable income (-1.4 percent), and real disposable income (-1.8 percent), each reflecting lower government COVID-19-related benefit payments. The savings rate was +19.0 percent, versus +24.2 percent in May and +8.3 percent as recently as February.

…Consumer sentiment faltered in July. The Conference Board’s Consumer Sentiment Index shed 5.7 points during the month to a seasonally adjusted reading of 92.6 (1985=100). The present conditions index advanced 7.5 points to 94.2, but the expectations index plummeted by 14.6 points to 91.5. While only 17.3 percent of survey respondents saw current business conditions as “good” and 39.1 percent saw them as “bad,” both percentages reflected an improvement from June. Less sanguine, however, is that 31.6 percent of consumers expect business conditions will improve over the next six months (down from 42.4 percent in June’s survey) while 19.3 percent expect conditions will further deteriorate (up from 15.2 percent the prior month). The press release noted that the current conditions index fell sharply in Michigan, Florida, Texas, and California, “no doubt a result of the resurgence of COVID-19.”

Also falling was the University of Michigan’s Index of Consumer Sentiment, losing 5.6 points to a seasonally adjusted 72.5 (1966Q1=100). The same measure was at 98.4 one year ago. With this survey, both the current and expected conditions indices fell and were well below their year-ago marks. The former shed 4.3 points to 82.8 (July 2019: 110.7) while the latter fell by 6.4 points to a reading of 65.9 (July 2019: 90.5). The press release links the declines to “the continued resurgence of the coronavirus.”

First-time jobless claims rose for a second straight week. The Department of Labor estimates there were a seasonally adjusted 1.434 million first-time claims made for unemployment insurance benefits during the week ending July 25, up 12,000 from the prior week. The four-week moving average, which smooths out some week-to-week volatility, grew by 6,500 to 1.368 million and was up 540.2 percent from a year earlier. Continuing claims jumped by 867,000 during the week ending July 18 to a 17.018 million. The four-week average for continuing claims was up 904.6 percent from the same week a year earlier.

Durable goods orders advanced for a second consecutive month. The Census Bureau reports that new orders for manufactured durable goods jumped 7.3 percent in June, following a 15.1 percent increase in May. At $206.9 billion, new orders were, however, 12.7 percent behind their year-ago pace. Transportation goods led the way, rising 20.0 percent for the month as motor vehicle orders surged 85.7 percent (aircraft orders were very weak). Net of transportation goods, orders gained 3.3 percent, boosted by advances for fabricated metals (+4.5 percent), primary metals (+3.6 percent), machinery (+2.7 percent), electrical equipment/appliances (+1.2 percent), and computers/electronics (+0.1 percent).

Other U.S. economic data released over the past week:

• – Pending Home Sales (June 2020, Index (2001=100), seasonally adjusted): 116.1 (+16.6% vs. May 2020, +6.3% vs. June 2019).
• – Agricultural Prices (June 2020, Prices Received by Farmers): +1.0% vs. May 2020, +4.9% vs. June 2019.

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