Spending and Prices Rise: November 22 – 26

Inflation remained well above the Fed’s two-percent target. Here are the five things we learned from U.S. economic data released during the week ending November 26. 

1. Consumer spending rose in October (but so did prices). The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) jumped a seasonally adjusted 0.7 percent during the month. This matched August’s consumer spending gain and was more than double September’s 0.3 percent advance. Spending on goods swelled 1.0 percent, split by increases for durable and nondurable goods of 2.0 percent and 0.4 percent, respectively. Expenditures on services jumped 0.5 percent. Nominal (not price adjusted) PCE gained 1.3 percent, funded (in part) by higher levels of nominal personal and disposable income (+0.5 percent and +0.3 percent, respectively). Real disposable income shrank 0.3 percent in October. With spending outpacing income, the savings rate fell to a pandemic low (but still above average) of +7.3 percent. The PCE price index—a measure of inflation—rose 0.6 percent in October and was up 5.0 percent over the past year. The core PCE price index, which nets out energy and food, rose 0.4 percent during the month and was up 4.1 percent from a year earlier. 

2. Even after a data revision, Q3 economic growth was underwhelming. The Bureau of Economic Analysis’s second “preliminary” estimate of third-quarter 2021 Gross Domestic Product (GDP) has the U.S. economy growing at a seasonally adjusted annualized rate (SAAR) of +2.1 percent. This represented a 1/10th of a point from the previously published 2.0 percent growth rate and sharply down from Q1’s and Q2’s annualized expansions of +6.3 percent and +6.7 percent, respectively. The slight upward revision to GDP resulted from higher than previously believed levels of personal consumption and private inventory accumulation. This report also features the first estimate at Q3 corporate profits, which rose 4.3 percent during the quarter and were 20.7 percent ahead of their year-ago levels. Corporate profits had surged 10.5 percent in Q2.  The BEA will revision its Q3 GDP and corporate profit estimates once again in late December.

3. Economic activity accelerated in October. The Chicago Fed National Activity Index (CFNAI) rose by 94-basis points during the month to a reading of +0.76, its highest point since July. As a CFNAI reading of zero indicates that the U.S. is growing at its historical average, October’s reading signals above-average economic activity. Sixty-one of the CFNAI’s 85 economic indicators made positive contributions to the index. All four major indicator groupings made positive contributions to the CFNAI: production (+0.44), employment (+0.24), sales/orders/inventories (+0.05), and personal consumption/housing (+0.03). The CFNAI’s three-month moving average of +0.21 was down by a single basis point from September.

4. Sales of previously owned homes inched up in October. The National Association of Realtors estimates existing home sales increased 0.8 percent to a seasonally adjusted annualized rate (SAAR) 6.34 million. While sales had risen to their highest point since January, they were off 5.8 percent from a year earlier. Sales improved in the Midwest (+4.2 percent) and South (+0.4 percent), fell in the Northeast (-2.6 percent), and held steady in the West. Inventories shrank 0.8 percent to 1.25 million homes (-12.0 percent versus October 2020), the equivalent to a meager 2.4 month supply. The median sales price of $353,900 was 13.1 percent above their year-ago level. 

5. Inflation fears depressed consumer confidence in November. The University of Michigan’s Index of Consumer Sentiment dropped 4.3 points during the month to a seasonally adjusted 67.4 (1966Q1=100). Down 9.5 points from a year earlier, the index was at its lowest point since November 2011. The present conditions index lost 4.1 points to a reading of 73.6, while the expectations index was off 4.4 points to 63.5. The press release blamed the deteriorating sentiment on “a combination of rapidly escalating inflation combined with the absence of federal policies that would effectively redress the inflationary damage to household budgets.” One in four survey respondents noted “inflationary erosions of their living standards.”

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

  • Jobless Claims (Week ending November 20, 2021, First-Time Claims, seasonally adjusted): 199,000, -71,000 vs. the previous week, -464,000 vs. the same week a year earlier). 4-week moving average: 252,250 (-66.2% vs. the same week a year earlier). 
  • Durable Goods (October 2021, New Orders for Manufactured Durable Goods, seasonally adjusted): $260.1 billion (-0.5% vs. September 2021).
  • New Home Sales (October 2021, Sales of New Single-Family Homes, seasonally adjusted annualized rate): 745,000 (+0.4% vs. September 2021; -23.1% vs. October 2020).

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

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