A Slackening Rebound: August 24 – 28

Economic (and consumer spending, more specifically) growth moderated mid-summer. Here are the five things we learned from U.S. economic data released during the week ending August 28.


Personal spending jumped for a third straight month in July, albeit at a more restrained pace. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) rose 1.6 percent during the month, after having soared 8.4 percent and 5.7 percent in May and June, respectively. Even after the three consecutive increases, PCE remained 3.8 percent below year-ago levels. During July, spending on both services and goods gained 1.6 percent, with the latter split between increases of 2.5 percent and 1.2 percent for durable and nondurable goods, respectively. Without inflation adjustments, nominal PCE increased 1.9 percent, funded by gains for nominal personal and disposable income of 0.4 percent and 0.2 percent, respectively. Real disposable income, however, slipped 0.1 percent. The savings rate was at a very high (but its lowest point since February) +17.8 percent.  

Even after a revision, Q2 GDP was historically bad. The Bureau of Economic Analysis’ second estimate of second-quarter 2020 Gross Domestic Product found the U.S. economy contracted 31.7 percent on a seasonally adjusted annualized basis. This was a slight improvement from the -32.9 percent fall reported a month ago, resulting from smaller than previously believed declines in both personal consumption and private inventory investment. The rapid reduction in personal consumption remained, by far, the largest contribution to Q2’s GDP drop, followed by nonresidential fixed investment, the change in private inventories, residential fixed investment, and state/local government expenditures. Both federal government expenditures and net exports made positive contributions to Q2 GDP. The same report also found that corporate profits plummeted 11.1 percent during the quarter and were 20.1 percent below year-ago levels. The BEA will update its Q2 GDP and corporate profits estimates on September 30.

The U.S. economy expanded in July, but at a slower rate in comparison to May and June. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, came in at 1.18 for the month. While this was well below May’s and June’s readings of +4.24 and +5.33, respectively, this was the third consecutive month with a positive reading, indicative of the U.S. economy growing faster than its historical average. (Just as a reminder, the CFNAI was at -17.91 in April). Fifty-six of 85 CFNAI components made a positive contribution to the headline index in July, although readings for all four major categories of components fell during the month. The CFNAI’s three-month average jumped by 637-basis points to +3.59.

Consumer sentiment was underwhelming in August. The Conference Board’s Consumer Confident Index fell for a second consecutive month, shedding 6.9 points to a seasonally adjusted 91.7 (1985=100). The present conditions index slumped 11.7 points to 84.2, while the expectations index declined by 3.7 points to 85.2. 43.6 percent of survey respondents saw current economic conditions as being “bad” versus a mere 16.4 percent who viewed them as good. Similarly, only 29.9 percent of consumers anticipate business conditions will improve over the next six months (20.5 percent expect a further deterioration). The press release said consumer spending “will likely…cool in the months ahead.”

The University of Michigan’s Index of Consumer Sentiment added 1.6 points in August to a seasonally adjusted reading of 74.1 (1966Q1=100). Even with the gain, however, the measure remained 17.5 percent under year-ago levels, with the index up by only 4/10ths of a point since April. The current conditions index edged up 1/10th of a point to 82.9 (August 2019: 105.3) while the expectations index increased by 2.6 points to a reading of 68.5 (August 2019: 79.9). The press release notes that 62 percent of survey respondents as “unfavorable.”  

New home sales rose to an almost 14-year high in July. The Census Bureau reports that new home sales rose 13.9 percent during the month. The seasonally adjusted annualized rate of 901,000 was up 36.3 percent from a year earlier and signaled the best month for new home sales since December 2006. Sales rose during the month in three of four Census regions (the exception was the North) while all four regions enjoyed substantial year-to-year percentage increases. Inventories tightened further, with the 299,000 new homes available for sale at the end of July down 1.6 percent from June and 8.8 percent from a year earlier (and the equivalent to a 4.0-month supply).

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

  • Jobless Claims (Week ending August 22, First-Time Claims, seasonally adjusted): 1,006,000 (-98,000 vs. the previous week, +791,000 vs. the same week a year earlier). 4-week moving average: 1,068,000 (+395.6% vs. the same week a year earlier).
  • Durable Goods Orders (July 2020, New Orders for Manufactured Durable Goods, seasonally adjusted): $230.7 billion (+11.2% vs. June 2020). Nontransportation Goods: $155.9 billion (+2.4% vs. June 2020).
  • Pending Home Sales (July 2020, Index (2001=100), seasonally adjusted): 121.1 (vs. June 2020: 115.3, July 2019: 105.7).
  • FHFA House Price Index (June 2020, Purchase-Only Index, seasonally adjusted): +0.9% vs. May 2020, +5.7% vs. June 2019.
  • Agricultural Prices (July 2020, Prices Received by Farmers): -2.0% vs. June 2020, -4.3% vs. July 2019.

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

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