The U.S. economy managed Q2’s headwinds well, so the Fed bumped up short-term rates again. Here are the five things we learned from U.S. economic data released during the week ending July 28.
The Fed resumed hiking interest rates. The policy released following the past week’s Federal Open Market Committee (FOMC) meeting virtually matched that from the mid-June meeting, with only one minor difference: noting that the U.S. economy was expanding at a “moderate” rate. Previously it had characterized the growth as being “modest.” Otherwise, the statement reaffirmed the FOMC’s view that job gains were “robust,” the unemployment rate was “low,” and that inflation was “elevated.” But unlike back in June, the FOMC voted unanimously to raise the fed funds target by a quarter percentage point to a range between 5.25 and 5.50 percent (a 21-year high). Further, the Fed will continue to shed Treasury securities, agency debt, and agency mortgage-backed securities from its portfolio. Further, the FOMC reaffirmed that it “strongly committed to returning inflation to its 2 percent objective.”
The U.S. economy expanded at a moderate, healthy pace in Q2. The Bureau of Economic Analysis’ first estimate of second quarter 2023 Gross Domestic Product (GDP) has the economy growing 2.4 percent at a seasonally adjusted annualized rate (SAAR). This was an improvement over Q1’s 2.0 percent gain. Contributing to Q2 expansion were, in descending order: personal consumption expenditures, nonresidential (business) investment, state/local government spending, private inventory accumulation, and federal government spending. Residential fixed investment and net exports were drags on the economy. The BEA will revise its Q2 GDP estimates twice over the next two months.
Personal income surged, while inflation was moderate in June. Real personal consumption expenditures (PCE) jumped 0.4 percent on a seasonally adjusted annual basis. The Bureau of Economic Analysis measure was up only 0.1 percent in May. Spending on goods jumped 0.9 percent, with split gains for durable and nondurable goods of +1.7 percent and +0.4 percent, respectively. Services expenditures inched up 0.1 percent. Nominal PCE (without inflation adjustments) improved 0.5 percent, funded by 0.3 percent gains for nominal personal and disposable income. Real disposable income was up 0.2 percent. The savings rate slipped by 3/10ths of a percentage point to +4.3 percent. Real PCE has risen 2.4 percent over the past year, funded by a 4.7 percent jump in real disposable income. The Fed’s preferred inflation measure, the PCE price index, increased 0.2 percent in June, with the core measure (net of energy and food) matching that rise. Over the past year, the PCE price index has grown 3.0 percent, while the 12-month comparable for the core measure gained 4.1 percent.
Consumers were more cheerful about the economy in July. The Conference Board’s Consumer Confidence Index jumped 6.9 points to a seasonally adjusted 117.0 (1985=100), a two-year high. The present conditions index added 4.7 points to 160.0, while the expectations index rose 8.3 points to 88.3. 21.9 percent of survey respondents saw business conditions as “good,” versus 15.2 percent who viewed them as “bad.” 46.9 percent of consumers report that jobs were “plentiful,” well above the 9.7 percent who said they were “hard to get.” The press release noted that consumers across all age groups and most income categories expressed “greater confidence.”
The Index of Consumer Sentiment added 7.2 points in July to a seasonally adjusted reading of 71.6 (1966Q1=100). The University of Michigan’s press release noted this was the measure’s “most favorable reading since October 2021.” The current conditions index increased by 7.6 points to 76.6, while the expectations measure rose by 6.8 points to 68.3. One-year inflation expectations edged up by 1/10th of a percentage point to +3.4 percent, while five-year expectations were steady at +3.0 percent. The press release links the growing confidence to “the continued slowdown in inflation along with stability in labor markets.”
Durable goods, particularly civilian aircraft, take off in June. New orders of manufactured durable goods rose 4.7 percent to a seasonally adjusted $302.5 billion. The Census Bureau measure has totaled $1.710 trillion over the first six months of 2023, up 4.6 percent from last year’s comparable months. Transportation goods orders surged 12.1 percent, reflecting rises for civilian (+69.4 percent) and defense (+5.5 percent) aircraft. Net of transportation goods, core orders gained 0.6 percent. Core goods orders over the first six months of 2023 were 0.5 percent ahead of their year-ago pace. Orders gained for computers/electronics (+1.5 percent), fabricated metals (+1.3 percent), and primary metals (+0.9 percent).
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending July 22, 2023, First-Time Claims, seasonally adjusted): 221,000, -7,000 vs. the previous week, +10,000 vs. the same week a year earlier). 4-week moving average: 223,750 (+4.4% vs. the same week a year earlier).
- New Home Sales (June 2023, New Single-Family Home Sales, seasonally adjusted annualized rate): 697,000 (-2.5% vs. May 2023; +23.8% vs. June 2022).
- Pending Home Sales (June 2023, Index (2001=100), seasonally adjusted): 76.8 (+0.3% vs. May 2023; -15.6% vs. June 2022).
- FHFA House Price Index (May 2023, Purchase-Only Index, seasonally adjusted): +0.7% vs. May 2023; +2.8% vs. June 2022.
- S&P Case-Shiller Home Price Index (May 2023, National Index, seasonally adjusted): +0.7% vs. April 2023; -0.5% vs. May 2022.
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What We Learned About the U.S. Economy Last Week 