Two in a Row: July 25 – 29

The U.S. economy shrank again. Here are the five things we learned from U.S. economic data released during the week ending July 29. 


The U.S. economy contracted for a second straight quarter. Real Gross Domestic Product (GDP) declined 0.9 percent on a seasonally adjusted annualized basis during Q2, following a 1.6 percent contraction during the opening months of 2022. The Bureau of Economic Analysis measure last shrank during the first two quarters of 2020 (the opening days of the COVID-19 pandemic). Whether or not the U.S. economy is in a “recession” is subject to debate—perhaps a discussion that arguably is as much political as it is substantive. But the shine from the pandemic rebound is over. Dragging down Q2 GDP (in descending order) were the decline in private inventories, fixed nonresidential investment, imports, and federal and state/local government expenditures. Exports and personal consumption expenditures positively added to GDP growth. The BEA will revise its Q2 GDP estimate twice over the next two months. 

Economic activity faltered in June. The Chicago Fed National Activity Index (CFNAI) reading of -0.19 matched May’s. A reading below zero indicates a U.S. economy expanding below its historical average. Forty-one of the 85 economic measures that comprise the CFNAI made positive contributions, with the other 44 dragging down the measure. Among the four major categories of CFNAI components, those associated with production (-0.20) and personal consumption/housing (-0.06) pulled down the index. Making positive contributions were measures linked to employment (+0.05) and sales/orders/inventories (+0.03). The CFNAI’s three-month moving average dropped by 15 basis points to -0.04, its lowest reading since June 2020.

Growing income and spending struggled to outpace inflation in June. The Census Bureau reports that real Personal Consumption Expenditures (PCE) eked out a seasonally adjusted 0.1 percent increase during the month, following a 0.3 percent drop in May. Real spending on goods and services both gained 0.1 percent, with the former split by a 0.9 percent rise for durable goods and a 0.4 percent decline for nondurables. Without inflation adjustments, nominal consumer spending surged 1.1 percent, funded by rising nominal personal income (+0.6 percent) and nominal disposable income (+0.7 percent). Real disposable income slumped 0.3 percent. The savings rate fell to a pandemic-low of +5.1 percent. The PCE price index—a measure of inflation—jumped 1.0 percent in June and was up 6.8 percent from a year earlier. The core PCE price index, which removes both energy and food and is the Federal Reserve’s preferred inflation measure, increased 0.6 percent during the month and 4.8 percent over the past year. 

The Federal Reserve bumped up its short-term interest rate target again. The statement released following the past week’s Federal Open Market Committee (FOMC) meeting indicated that spending and production “have softened” but also that the labor market has been “robust.” Further, inflation “remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.” The statement affirmed the Fed “is strongly committed to returning inflation to its 2 percent objective.” As a result, the committee voted unanimously to raise the fed funds target rate by 75 basis points to a range between 2.25 percent and 2.50 percent. Further, the committee continues to shrink its Treasury and agency mortgage-backed securities holdings.

Consumer sentiment remained cool in the summer heat. The Conference Board’s Consumer Confidence Index shed 2.7 points in July to a seasonally adjusted 95.7 (1985=100). The index was 29.4 points below that of a year earlier. The present conditions index dropped by 6.9 points to 141.3, while the expectations index lost a half point to 65.3. While half of consumers said that jobs were “plentiful,” 12.3 percent indicated they were “hard to get.” Nonetheless, 17.0 percent of survey respondents said business conditions were “good,” while 24.0 percent viewed them as “bad.” The press release said that inflation “continued to weigh on consumers.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment added 1.5 points in July to a seasonally adjusted 51.5 (1966Q1=100). The measure was just above its all-time low (achieved in June) and 29.7 points below year-ago levels. The current conditions index rose by 4.3 points to 58.1 and the expectations index slipped by 2/10ths of a point to 47.3. The press release noted that consumers’ one-year economic outlook “fell to its lowest reading since 2009.” The reasons: inflation and that “labor market expectations continued to soften.”  

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

  • Jobless Claims (Week ending July 23, 2022, First-Time Claims, seasonally adjusted): 256,000, -5,000 vs. the previous week, -155,000 vs. the same week a year earlier). 4-week moving average: 249,250 (-38.8% vs. the same week a year earlier). 
  • Durable Goods (June 2022, New Orders for Manufactured Durable Goods, seasonally adjusted): $272.6 billion (+1.9% vs. May 2022).
  • S&P Case-Shiller Home Price Index (May 2022, National Index, seasonally adjusted): +1.0% vs. April 2022; 19.7% vs. May 2021.
  • FHFA House Price Index (May 2022, Purchase-Only Index, seasonally adjusted): +1.4% vs. April 2022; +18.3% vs. May 2021.
  • Agricultural Prices (June 2022, Prices Received by Farmers, not seasonally adjusted): +0.2% vs. May 2022; +25.6% vs. June 2021.

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

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