Increasing Spending on Services, Decreasing for Goods: August 23 – 27

Consumer spending shifted towards services as overall economic activity gathered speed in July. Here are the five things we learned from U.S. economic data released during the week ending August 27.


Personal spending was stable in July. The Bureau of Economic Analysis reports real Personal Consumption Expenditures (PCE) slipped a seasonally adjusted 0.1 percent during the month. This follows June’s half-point gain and keeps real spending 2.7 percent above its pre-pandemic peak in February 2020 and 7.6 percent ahead of its year-ago rate. Spending on goods fell 1.6 percent (durable goods: -2.6 percent and nondurables: -0.9 percent). Services expenditures rose 0.6 percent. After removing inflation adjustments, nominal PCE increased 0.3, funded by a 1.1 percent gain in both nominal personal income and nominal disposable income. Real disposable income rose 0.7 percent. As a result, the savings rate rebounded in July, growing 8/10ths of a percentage point to +9.6 percent.

Economic activity accelerated in July. The Chicago Fed National Activity Index rose by 54-basis points to a reading of +0.53, its highest mark since March. The CFNAI’s three-month moving average added 22-basis points to +0.23. A 0.00 CFNAI reading indicates that the U.S. economy is expanding at its historical average—thus, July’s single-month and moving average readings suggest a faster growing U.S. economy. Fifty-six of the CFNAI’s 85 indicators made positive contributions to the headline index. Three of four major categories of indicators positively contributed to the headline index, led by those tied to production, employment, and sales/orders/inventories. Housing/consumption indicators made negative contributions.

A slight upward revision to Q2 economic growth. Gross Domestic Product (GDP) swelled 6.6 percent on a seasonally adjusted annualized rate during the second quarter, up from the 6.5 percent growth rate previously reported by the Bureau of Economic Analysis. The revision resulted from greater business investment and exports and lower levels of private inventory accumulation, residential construction, and state/local government spending. The most significant contributors to Q2 economic growth were consumer spending, exports, and business investment. The same report finds corporate profits jumped an annualized 9.2 percent during Q2, an improvement to Q1’s 5.1 percent gain. Corporate profits have risen 43.4 percent over the past year. The BEA will update its Q2 GDP and corporate profits estimates in late September.

Home sales edged up in July. The existing home sales grew 2.0 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.990 million units. This was the National Association of Realtors’ second consecutive increase, leaving sales 1.5 percent ahead of their year-ago pace. Sales grew in three of four Census regions, with transactions holding steady in the Northeast. Inventories expanded 7.3 percent to 1.320 million homes, reflecting a still very tight 2.6 month supply. The median sales price of $359,900 was up a startling 17.8 percent from a year earlier.

Consumers grew sharply more pessimistic in August. The Index of Consumer Sentiment shed 9.9 points during the month to a seasonally adjusted reading of 70.3 (1966Q1=100). The University of Michigan measure sat at its lowest point since 2011. Since 1978 there have been only six sharper single-month declines in the headline index. The current conditions index lost six full points to 78.5, while the expectations index plummeted by 13.9 points to 65.1. The press release characterized the drop in sentiment as “an emotional response” that resulted from “the surging Delta variant, higher inflation, slower wage growth, and smaller declines in unemployment.”

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

  • Jobless Claims (Week ending August 21, 2021, First-Time Claims, seasonally adjusted): 353,000, +4,000 vs. the previous week, -519,000 vs. the same week a year earlier). 4-week moving average: 366,500 (-60.6% vs. the same week a year earlier).
  • Durable Goods (July 2021, New Orders for Manufactured Durable Goods, seasonally adjusted): $257.2 billion (-0.1% vs. June 2021).
  • New Home Sales (July 2021, Sales of New Single-Family Homes, seasonally adjusted annualized rate): 708,000 (+1.0% vs. June 2021, -27.2% vs. July 2021).

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

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