The growth trend in new daily COVID-19 cases continued last week, but the pace of growth is slowing. Consumer sentiment declined again in August.
Consumer spending slowed while inflation rose to its highest level in more than 30 years. The savings rate increased again as income growth outpaced spending growth. Jobless claims rose from their pandemic low. Home sales improved.
Economy grows: The second estimate of second-quarter real GDP resulted in an upward revision to growth of 6.6% annualized from the first estimate of 6.5%. Personal consumption was revised up to 11.9% from the original estimate of 11.8%.
Spending on goods was revised up to a gain of 12.8% from the original estimate of 11.6% while spending on services was revised down to 11.3% from the originally estimated gain of 12.0%. Gross private investment was revised down to a decline of 4.0% from an original estimate of a decline of 3.5%. The government spending decline was revised down to a decline of 1.9% from the originally estimated decline of 1.5%. The modest revisions left real GDP growth year over year unchanged at 12.2%.
Consumer spending slowed: Consumer spending growth slowed to 0.3% in July from June despite personal income growth accelerating to 1.1%. Government transfer payments increased, as the child tax credit payments that started in July appeared in the income data for the first time.
Unemployment benefits declined 12% while wages increased by 1.0%. Spending on durable goods declined 2.3% in July, and spending on nondurable goods declined 0.4%, and spending on services increased 1.0%. Spending on motor vehicles and parts declined 2.8%. The personal savings rate increased to 9.6% from 8.8% in June and remains higher than the savings rate average of 7.5% in the 12 months leading to the pandemic.
The Personal Consumption Expenditure (PCE) Index, the key gauge of inflation that the Fed follows, increased 0.4% from June. Overall price inflation according to the PCE increased to 4.2% in July from a year ago to the highest level since October 1990.
Home sales improve: Existing home sales increased again in July. The existing home sales SAAR increased 2.0% to 5.999 million, which was the highest pace since March. At the July rate, existing home sales were up 1.5% from a year ago and up 10.9% compared to July 2019.
Inventory increased to 1.32 million units, which was the highest level in nine months. However, June inventory was down 12.0% from a year ago. The National Association of Realtors reported that 89% of the homes sold in July were on the market for less than a month, and the typical time on the market was 17 days, which was unchanged from April, May, and June and still a record low. The months’ supply of homes for sale increased to 2.6 months, which was the highest since September but still less than half of what is considered normal.
The median sales price declined to $359,900 from a record $362,800 in July. Prices are up 17.8% from a year ago. Home sales were up in every region in July except the Northeast, where they were unchanged.
New-home sales, which are based on new contracts signed, improved in July after three months of declines. The new-home sales SAAR increased 1.0% to 708,000. New-home inventory was up 5.5% compared to June and up 26.1% year over year. The new-home supply increased to 6.2 months, which is close to normal. In July, 34% of the new homes sold were on homes not yet started, while 40% were under construction, and 25% were completed, finished units. The share represented by finished units is slowly growing. New-home sales in July were down 27% from a year ago but up 11% compared to 2019.
Consumer confidence declines: Measures of consumer sentiment from the University of Michigan and the index of consumer sentiment from Morning Consult have shown continued declines in August. The daily index from Morning Consult as of Friday was down 2.7% from July 31, leaving it down 19.2% from February 29, 2020. The Michigan Index declined 13% in August, leaving it down 30% from February 2020.
Jobless claims rise: As of August 14, 2.86 million Americans remained on traditional unemployment benefits, which are limited to at most six months of coverage, but 12.0 million remain on some form of unemployment benefits including pandemic unemployment assistance, which provides coverage beyond 6 months. That broadest measure of benefits has declined by 1.1 million over the last 4 weeks. Initial claims increased slightly last week to 353,000, after falling to a pandemic low the week prior. Weekly claims remain elevated as they averaged 212,000 per week in 2020 in the weeks before the pandemic began.