Consumer spending and economic activity held firm in May after a few bumps in April. Here are the five things we learned from U.S. economic data released during the week ending June 25.
Personal spending slipped in May but remained ahead of pre-pandemic levels. The Census Bureau reports that real Personal Consumption Expenditures (PCE) declined 0.4 percent during the month after gains of 4.4 percent and 0.3 percent in March and April. Real spending on goods dropped 2.0 percent, including a sharp 4.3 percent decline for durable goods. Nondurable goods spending decreased 0.5 percent. Meanwhile, expenditures on services grew 0.4 percent in May, following increases of 1.8 percent and 0.6 percent during the prior two months. Without adjustments for inflation, nominal PCE was flat in May as nominal personal and disposable income dropped 2.0 percent and 2.3 percent, respectively. Real disposable income disposable fell 2.8 percent. The income declines reflected decreased “economic impact payments made to individuals from the American Rescue Plan Act of 2021.” While still inflated, the savings rate fell to a pandemic low of +12.4 percent. The PCE deflator—a measure of inflation—grew 0.4 percent (its smallest gain since February), while the core measure (netting out energy and food) swelled 0.5 percent. Over the past year, two measures have risen 3.9 percent and 3.4 percent, respectively.
Economic growth accelerated in May. The Chicago Fed National Activity Index (CFNAI) rose by 38-basis points during the month to a reading of +0.29. (A CFNAI reading of 0.00 indicates the U.S. economy is expanding at its historical average.). Fifty-nine of the CFNAI’s 85 components made positive contributions to the CFNAI, with 57 indicators improving during the month. Among the four major component categories, contributions improved from April for production, sales/orders/inventories, and employment. Personal consumption/housing indicators’ negative contribution widened during the month. The CFNAI’s three-month moving average surged by 64-basis points to +0.81 (its best reading since last October).
Records prices and a dearth of inventory hampered home sales in May. Existing home sales fell for a fourth straight month, slowing 0.9 percent to a seasonally adjusted annualized rate (SAAR) at 5.80 million. The National Association of Realtors indicates that sales declined in three of four Census regions, with the Midwest being the exception. While the 1.23 million homes for sale at the end of May represented a 7.0 percent increase from April, it was the equivalent to a mere 2.5 month supply. As a result, the median sales price of $350,300 represented a stunning 23.6 percent increase from a year earlier. NAR anticipates that an increase in the numbers of homes for sales soon would “help tamp down record-high asking prices for existing homes.”
Transportation goods orders reversed course in May. The Census Bureau reports that new orders for manufactured durable goods jumped 2.3 percent during the month to a seasonally adjusted $253.3 billion. Orders have risen 12 out of the past 13 months and May’s gain compares favorably to April’s 0.8 percent increase. Transportation goods orders surged 7.6 percent, boosted by civilian aircraft (+31.5 percent) and motor vehicles (+2.1 percent). Net of transportation goods, core durable goods orders inched up 0.3 percent. Rising were orders for primary metals (+2.2 percent) and electrical equipment/appliances (+1.3 percent). Orders fell for fabricated metals (-1.1 percent), machinery (-0.4 percent), and computers/ electronics (-0.3 percent). A proxy for business investment—civilian nonaircraft capital goods orders—slipped 0.1 percent during the month.
Consumers are more confident but remain cautious about the future. The University of Michigan Index of Consumer Sentiment added 2.6 points in June to a seasonally adjusted 85.5 (1966Q1=100). The index was off 9/10ths of a point from the preliminary June reading reported a few weeks ago but remained at its second-highest point since the start of the pandemic. The current conditions index shed 8/10ths of a point in June, while the expectations index added 4.7 points to 83.5. The press release noted that the improvement in the headline index came from wealthier households as “[c]onsumers continued to pay close attention to three critical factors: inflation, unemployment, and interest rates.” The group also noted that consumers would continue to “maintain a higher level of precautionary funds” in the face of continued uncertainty.
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending June 19, First-Time Claims, seasonally adjusted): 411,000, -7,000 vs. the previous week, -1,049,000 vs. the same week a year earlier). 4-week moving average: 395,000 (-73.8% vs. the same week a year earlier).
- Gross Domestic Product (2021Q1-Third Estimate, GDP, seasonally adjusted annualized rate): +6.4% (vs 2020Q4: +4.3%, vs. 2020Q1: +-5.0%).
- New Home Sales (May 2021, Sales of New Single-Family Homes, seasonally adjusted annualized rate): 769,000 (-5.9% vs. April 2021, +9.2% vs. May 2020).
- State Employment (May 2021, Nonfarm Payrolls, seasonally adjusted): Vs. April 2021: Increased in 14 states, Decreased in 1 state, Essentially unchanged in 35 states and the District of Columbia. Vs. May 2020: Increased in all 50 states and the District of Columbia.
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What We Learned About the U.S. Economy Last Week 