Spending and Inflation Remain Vigorous: May 22 – 26

Inflation reignited in April. Here are the five things we learned from U.S. economic data released during the week ending May 26.


Consumer spending and prices rose in April. Real Personal Consumption Expenditures (PCE) jumped a seasonally adjusted 0.4 percent. The Bureau of Economic Analysis (BEA) measure had held steady in March. Good spending surged 0.8 percent, split between gains for durables and nondurables of +1.4 percent and +0.4 percent, respectively. Services expenditures edged up 0.3 percent. Without inflation adjustments, nominal PCE increased 0.8 percent, funded (partly) by 0.4 percent growth in nominal personal and disposable income. Real disposable income held steady in April. The savings rate fell by 4/10ths of a percentage point to +4.1 percent. The Federal Reserve’s preferred inflation measure, the PCE price index, swelled 0.4 percent in April following a 0.1 percent advance in March. Netting out both energy and food, core PCE also grew 0.4 percent. The 12-month comparables for the headline and core PCE price indices were +4.4 percent and +4.7 percent, respectively—both above the Fed’s two percent target.    

Q1 GDP was slightly better than first believed. The second estimate of first quarter 2023 Gross Domestic Product (GDP) has the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of +1.3 percent. The Bureau of Economic Analysis previously reported GDP growing 1.1 percent during Q1. The upward revision resulted from a higher estimate for private inventory accumulation. Supporting Q1 economic activity were (in descending order): personal consumption, exports, federal and state/local government spending, and nonresidential fixed investment. Weighing on GDP were private inventories, imports, and residential fixed investment. Corporate profits slumped 5.1 percent from the prior quarter and were 2.8 percent under their year-ago pace. The BEA will update its Q1 GDP and corporate profit estimates again in late June.     

Business activity improved in April. The Chicago Fed National Activity Index (CFNAI) jumped by 44 basis points to a reading of +0.07, its best mark since January. A positive CFNAI reading indicates that the U.S. economy is expanding faster than its historical average. Forty of the 85 components of CFNAI made contributions to the index. Among four major component categories, two (production and employment) made positive contributions to the CFNAI, while the other two (sales/orders/inventories and consumption/housing) dragged down the index. Despite April’s rise, the CFNAI’s three-month moving average deteriorated by ten basis points to -0.22.

Consumers continued having the blahs in May. The University of Michigan’s Index of Consumer Sentiment dropped 4.3 points to a seasonally adjusted 59.2. The index was at 58.4 in May 2022 and has been below 65.0 for 16 consecutive months. The current conditions index lost 3.3 points to 64.9 (May 2022: 63.3), while the expectations index fell by 5.1 points to 55.4 (nearly matching its year-ago reading of 55.2). The press release noted that confidence “fell severely” among respondents in the West and those with “middle incomes.” One-year inflation expectations were at +4.2 percent (down from April’s +4.6 percent). 

New home sales grew for the eighth time in nine months. The Census Bureau reports that sales of newly constructed single-family homes increased 4.1 percent to a seasonally adjusted annualized rate (SAAR) of 683,000 units. Sales were up 11.8 percent from a year earlier. Sales gained in the South and Midwest but fell in the Northeast and West (on both a month-to-month and year-to-year basis). New home inventories held steady at 433,000 units, the equivalent to 7.6 month supply. The median sales price of $420,800 was down 8.2 percent from a year earlier. 

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

  • Jobless Claims (Week ending May 20, 2023, First-Time Claims, seasonally adjusted): 229,000, +4,000 vs. the previous week, +14,000 vs. the same week a year earlier). 4-week moving average: 231,750 (+7.2% vs. the same week a year earlier). 
  • Durable Goods (April 2023, New Orders for Manufactured Durable Goods, seasonally adjusted): $283.0 billion (+1.1% vs. March 2023).
  • Pending Home Sales (April 2023, Index (2001=100), seasonally adjusted): 78.9 (Unchanged vs. March 2023; -20.3% vs. April 2022). 
  • FOMC Minutes

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

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