Consumers Hesitate: September 25 – 29

Consumer spending paused as summer ended. Here are the five things we learned from U.S. economic data released during the week ending September 29.

Consumer spending and core inflation cooled in August. Real Personal Consumption Expenditures (PCE) grew a seasonally adjusted 0.1 percent, the smallest gain for the Bureau of Economic Analysis measure since May. Goods spending slipped 0.2 percent (durable goods: -0.3 percent and nondurables: -0.1 percent). Services expenditures increased 0.2 percent. Nominal PCE (without inflation adjustments) increased 0.4 percent, funded by gains in both nominal personal income (+0.4 percent) and disposable income (+0.2 percent). Real disposable income declined 0.2 percent. The savings rate declined by 2/10^ths of a percentage point to +3.9 percent. Real PCE has grown 2.3 percent over the past year, funded by a 3.7 percent increase in real disposable income. The PCE Price Index—the Federal Reserve’s preferred inflation measure—grew 0.4 percent in August and 3.5 percent over the past year. The core PCE Price Index, which removes food and energy, edged up 0.1 percent and was up 3.9 percent from a year earlier. 

Another revision shows a solid, if not spectacular, Q2 for the U.S. economy. The Bureau of Economic Analysis’s third estimate of second quarter 2023 Gross Domestic Product has the economy expanding 2.1 percent on a seasonally adjusted annualized basis. The estimate was off 1/10^th of a percentage point from the previous report, reflecting lower than previously believed levels of consumer spending. The U.S. economy has grown by 2.4 percent over the past year. Driving Q2 growth were, in descending order, fixed nonresidential investment (+0.90), personal consumption expenditures (+0.55), state/local government spending (+0.50), federal government spending (+0.07), and net exports (+0.04). The same report finds corporate profits increased a paltry 0.2 percent in Q2 and down 2.7 percent from the second quarter in 2022. 

Economic activity slowed in August. The Chicago Fed National Activity Index declined 23 basis points to -0.16. A reading below zero (but above -0.70) means the U.S. economy was expanding below its historical average. Thirty-five of the 85 CFNAI components made positive contributions to the index. All four major categories of index components made negative contributions: personal consumption/housing (-0.08), and employment (-0.04), sales/orders/inventories (-0.03), production (-0.02). The CFNAI’s three-month moving average improved by a basis point to -0.14. 

New home sales slumped in August. The Census Bureau reports that new single-family home sales fell 8.7 percent to a seasonally adjusted annualized 739,000. Sales were up 5.8 percent from a year earlier. While sales improved in the Northeast, they declined in the Midwest, West, and Midwest. There were 436,000 new homes available for sale, the equivalent to a 7.8 month supply. The median sales price of $430,300 was down 2.3 percent from a year earlier. 

Consumer confidence wavered in September. The Conference Board’s Consumer Confidence Index lost 5.7 points to a seasonally adjusted 103.0. The index was down 4.5 percent from a year earlier. The current conditions index inched up 4/10^ths of a point to 147.1, while the expectations index fell 9.6 points to 83.3. 20.8 percent of survey respondents characterized current business conditions as “good,” while 16.4 percent said that they were “bad.” 40.9 percent of Americans said jobs were “plentiful,” compared to 13.6 percent indicating they were “hard to get.”  The press release said that people were “preoccupied with rising prices.” 

Meanwhile, the University of Michigan’s Index of Consumer Sentiment shed 1.4 points to a seasonally adjusted 68.1. Even with the loss, the index was up 16.2 percent from a year earlier. Falling was the current conditions index (down 4.3 points to 71.4), while the expectations index added a half point to 66.0. One-year inflation expectations declined by 3/10^ths of a percentage point to +3.2 percent (its lowest reading since March 2021). The press release said that consumers were “understandably unsure about the trajectory of the economy.”

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

• Jobless Claims (Week ending September 23, 2023, First-Time Claims, seasonally adjusted): 204,000, +2,000 vs. the previous week, +22,000 vs. the same week a year earlier). 4-week moving average: 211,000 (+10.8% vs. the same week a year earlier). 
• Durable Goods (August 2023, New Orders for Manufactured Durable, seasonally adjusted): $284.7 billion (+0.2% vs. July 2023; Year-to-Date: +4.2% vs. 2022). 
• Pending Home Sales (August 2023, Index (2001=100), seasonally adjusted): 71.8 (-7.1% vs. July 2023; -18.7% vs. August 2022). 
• FHFA Home Price Index (July 2023, Purchase-Only Index, seasonally adjusted): +0.8% vs. June 2023; +4.6% vs. July 2022. 
• S&P Case-Shiller House Price Index (July 2023, National Index, seasonally adjusted): +0.6% vs. June 2023; +1.0% vs. July 2022. 
• Agricultural Prices (August 2023, Prices Received by Farmers, not seasonally adjusted): +0.3% vs. July 2023; -4.5% vs. August 2022. 

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