Consumer Spending and Prices Rose in August: September 27 to October 1

Inflation did not take a late summer vacation. Here are the five things we learned from U.S. economic data released during the week ending October 1.

Consumer spending and prices gained in August. Real personal consumption expenditures (PCE) jumped a seasonally adjusted 0.4 percent during the month after dropping 0.5 percent in July. The Bureau of Economic Analysis notes that spending on goods advanced 0.6 percent (as a 1.7 percent jump in nondurable goods expenditures counterbalanced a 1.3 percent slump for durables). Spending on services increased 0.3 percent. Nominal (not price adjusted) PCE jumped 0.8 percent, funded by a 0.2 percent gain in nominal personal income and a 0.1 percent bump in nominal disposable personal income. After inflation adjustments, real disposable income fell 0.3 percent. As a result, the saving rate narrowed by 7/10^ths of a percentage point to +9.4 percent. Inflation continues to ripple through the U.S. economy: the PCE deflator grew 0.4 percent in August, while the core PCE deflator (net of energy and food) gained 0.3 percent. Over the past year, prices have surged 4.3 percent while core prices were up 3.6 percent.

Another data revision continues to find robust Q2 economic activity. The third estimate of Q2 Gross Domestic Product (GDP) has the U.S. expanding at a seasonally adjusted annualized rate of 6.7 percent. The Bureau of Economic Analysis’s revision represented a 1/10^th of a point improvement from the prior month’s estimate. The most significant contributors to Q2 economic growth came from (in declining order) consumer spending, business investment, exports, and state/local government spending. Making negative contributions to GDP were (in declining order) the change in private inventories, imports, residential investment (housing), and federal government spending. Corporate profits surged an annualized 10.5 percent during Q2 and were up 45.1 percent from a year earlier (which was the early days of the pandemic). We will see the first estimate of Q3 economic activity on October 28.

Durable goods orders rose in August. The Census Bureau estimates new orders for manufactured durable goods surged 1.8 percent during the month to a seasonally adjusted $263.5 billion. Orders have risen in 15 of the past 16 months. Transportation goods (particularly civilian aircraft orders) led the way with a 5.5 percent bounce. Net of transportation goods, core orders increased 0.2 percent. Increasing were orders for fabricated metal products (+2.0 percent), computers/electronics (+1.4 percent), and electrical equipment/appliances (+1.3 percent). Falling were orders for primary metals (-1.5 percent) and machinery (-1.2 percent). A proxy for business investment—civilian nonaircraft capital goods orders—increased 0.5 percent in August.

Manufacturing activity held firm in September. Manufacturing PMI, from the Institute for Supply Management, added 1.2 points during the month to a reading of 61.1. The measure has remained above a reading of 50.0—the threshold between an expanding and contracting manufacturing sector—for 16 consecutive months. Whereas the measure for new orders held steady and the one for production declined, indices tracking employment and supplier deliveries gained in September. Seventeen of 18 tracked manufacturing industries expanded in September, led by furniture, petroleum/coal products, and machinery. The one outlier industry was wood products. The press release noted that “demand remains at strong levels, despite increasing prices.”

Sentiment wobbled in September. The Conference Board’s Consumer Confidence Index lost 5.9 points during the month to a seasonally adjusted 109.3 (1985=100). The measure has plummeted by 19.6 points since its pandemic peak in June. The current conditions index shed 4.5 points to 143.4 and the expectations index fell by 6.2 points to 86.6. The press release stated that “confidence is still high by historical levels” but noted that “the spread of the Delta variant continued to dampen optimism.” 19.3 percent of survey respondents said business conditions were “good” (versus 25.4 percent that saw them as “bad”), while 55.9 percent of consumers agreed that jobs were “plentiful” (versus 13.4 percent that said they were “hard to get”).

The University of Michigan’s Index of Consumer Sentiment added 2.5 points in September to a seasonally adjusted 72.8 (1966Q1=100). The measure has lost 15.5 points since its pandemic peak in April. The current conditions index added 1.6 points to 80.1 while the expectation index rose by three full points to 68.1. (Both indices are significantly below year-ago levels.) The press release blames recent weakness in sentiment on the Delta variant, inflation, and “unfavorable” long-term expectations for the economy.

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

• Jobless Claims (Week ending September 25, 2021, First-Time Claims, seasonally adjusted): 362,000, +11,000 vs. the previous week, -441,000 vs. the same week a year earlier). 4-week moving average: 340,000 (-60.0% vs. the same week a year earlier).

• Pending Home Sales (August 2021, Index (2001=100), seasonally adjusted): 119.5 (+8.1% vs. July 2021, -8.3% vs. August 2020).

• FHFA House Price Index (July 2021, Purchase-Only Index, seasonally adjusted): +1.4% vs. June 2021, +19.2% vs. July 2020.

• Construction Spending (August 2021, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.584 trillion (Unchanged vs. July 2021, +8.9% vs. August 2020).

• Agricultural Prices (August 2021, Prices Received by Farmers, not seasonally adjusted): +2.3% vs. July 2021, +26.0% vs. August 2020.

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