Rising Prices Eat Away at Spending Power: June 27 – July 1

The Fed’s preferred inflation measure has prices rising unabated this spring. Here are the five things we learned from U.S. economic data released during the week ending July 1. 

Personal spending slipped during May in the face of inflation. Real Personal Consumption Expenditures (PCE) declined a seasonally adjusted 0.4 percent after inching up 0.2 percent in April, per the Bureau of Economic Analysis. Goods spending fell 1.6 percent, split by -3.5 percent for durable goods and -0.6 percent for nondurable goods. Services expenditures increased 0.3 percent. Without inflation adjustments, nominal PCE grew 0.2 percent, funded by 0.5 percent in both nominal personal and disposable income. Real disposable income slipped 0.1 percent. As a result, the savings rate grew by 2/10^ths of a percentage point to +5.4 percent. The PCE price index jumped 0.6 percent in May and has surged 6.3 percent over the past year. Net of energy and food, the core price index was up 0.3 percent for the month and 4.7 percent over the past year.  

A data revision finds an even greater decline in Q1 GDP. The third estimate of first-quarter 2022 Gross Domestic Product (GDP) finds the Bureau of Economic Analysis measure contracting 1.6 percent on a seasonally adjusted annualized basis. The prior estimate had the U.S. economy slowing 1.5 percent in Q1, with the updated report reflecting lower than previously believed levels of personal spending. Industries dragging down Q1 GDP included nondurable goods manufacturing, retail, finance/insurance, mining, transportation/warehousing, wholesale trade, accommodation/foods services, agriculture, and the federal government. Corporate profits declined 2.2 percent to an annualized $2.873 trillion. Despite the decline, corporate profits were 12.6 percent ahead of their year-ago pace.

Manufacturing activity grew at a slower pace in June. The PMI lost 3.1 points to a reading of 53.0. The PMI has remained above 50.0—the threshold between an expanding and contracting manufacturing sector—for 25 straight months, although Institute for Supply Management measures was at a three-year low. Index components for new orders and employment fell, while those for production and inventories improved from their May levels. Fifteen of 18 manufacturing industries reported growth in June, led by apparel, textiles, and printing. 

Durable goods orders rose in May. New orders for manufactured durable goods increased 0.7 percent to $267.2 billion. The Census Bureau measure has gained in seven of the past eight months. Rising were orders for transportation goods (including motor vehicles, but not civilian aircraft), primary metals, machinery, and computers/electronic products. Orders slowed for electrical equipment/appliances. Durable goods shipments expanded for the 12^th time in 13 months, adding 1.3 percent to $268.4 billion. Unfilled orders swelled for the 21^st consecutive month, growing 0.3 percent to $1.110 trillion, while inventories expanded 0.6 percent to $482.7 billion. 

Construction spending essentially held steady in May. The Census Bureau reports that the value of construction put in place edged down 0.1 percent to a seasonally adjusted annualized rate of $1.780 trillion. Construction spending has risen 9.7 percent over the past year, with year-to-date spending up11.0 percent over the comparable 2021 months. Private sector spending matched its April 2022 pace at $1.436 trillion, including a 0.2 percent gain in residential construction expenditures. Public sector spending decreased 0.8 percent to $343.8 billion. Nonresidential spending declined 0.4 percent in May.

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

• Jobless Claims (Week ending June 25, 2022, First-Time Claims, seasonally adjusted): 231,000, -2,000 vs. the previous week, -174,000 vs. the same week a year earlier). 4-week moving average: 231,750 (-44.8% vs. the same week a year earlier). 
• Pending Home Sales (May 2022, Index (2001=100), seasonally adjusted): 99.9 (+0.7% vs. April 2022; -13.6% vs. May 2021). 
• FHFA House Price Index (April 2022, Purchase-Only Index, seasonally adjusted): +1.6% vs. March 2022; +18.8% vs. April 2021.
• S&P Case-Shiller Home Price Index (April 2022, National Index, seasonally adjusted): +1.5% vs. March 2022; +20.4% vs. April 2021.
• Agricultural Prices (May 2022, Prices Received by Farmers, not seasonally adjusted): +0.5% vs. April 2022; +26.7% vs. May 2021.

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