- Economic growth in the second quarter showed a modest slowing as consumer spending slowed.
- Consumer confidence declined again in September.
- Consumer plans to buy a vehicle declined on prices and interest rates.
Economic growth for the second quarter was unrevised at 2.1%, but revisions to historical data caused last year to be weaker and the first quarter to be stronger. As a result, the second quarter growth rate represented a modest slowing, and consumer spending growth slowed substantially.
Consumer spending growth decelerated in August, but income growth picked up. Aggregate inflation picked up in August, but core inflation came down.
New and pending home sales declined in August as mortgage rates moved higher.
Consumer confidence and sentiment declined again in September, following declines in August, and consumer plans to buy a vehicle declined as consumers saw less favorable prices and rates.
Economic growth showed modest slowing
The increase in the second-quarter real GDP was unrevised at a 2.1% annualized increase in the final estimate. The latest data included revisions to history that resulted in downward revisions to 2022 but an upward revision to Q1 2023. As a result, the performance in the second quarter this year was a slight deceleration from the 2.2% annualized growth in the first quarter.
Personal consumption was revised down to an increase of 0.8% from the prior estimate of 1.7%. Growth in spending on goods was revised down to 0.5% from 0.7%. Spending on services was revised down to 1.0% from 2.2%. Gross private investment was upwardly revised to an increase of 5.2% from the prior estimate of 3.3%. Real GDP growth year-over-year was revised down slightly to 2.4% from 2.5% after the latest revisions.
Consumer spending decelerated; incomes grew
Consumer spending decelerated in August and was weaker than expected, but July’s nominal spending was revised to a larger 0.9% gain from the original 0.8% estimate.
Personal income growth accelerated to a 0.4% gain and was in line with expectations. Employee compensation growth accelerated to 0.5% from 0.4% in July. Government transfer payments declined 0.2% after declining 0.6% in July, as unemployment compensation declined a smaller 0.2%. Proprietors’ income increased 0.4%, which was up from a downwardly revised 0.3% in July. Personal income from dividends increased, and interest income growth remained strong.
Spending on goods was flat while spending on services decelerated. Spending on durable goods declined 0.6% in August; spending on nondurable goods increased 1.3%, and spending on services increased 0.4%. Spending on motor vehicles and parts in August declined 1.1% following an upwardly revised 0.6% increase in July.
The personal savings rate declined to 3.9%, which was the lowest level since last December, but revisions to the historical data made savings higher so far this year than previously estimated.
The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.4% in August, which was up from 0.2% in July but less than expected. Overall price inflation according to the PCE increased to 3.5% in August from a year ago from an upwardly revised 3.4% in July, while the core inflation rate declined to 3.9% from 4.3%. Factoring in inflation, real spending increased 0.1% in August, decelerating from an upwardly revised 0.9% gain in July.
Home sales declined in August as mortgage rates moved higher
New home sales, which are based on new contracts signed on newly constructed homes, saw declining sales in August but had prior sales in July revised higher.
New home sales at an annualized pace of 675,000 were down 8.7% month-to-month but up 5.8% from a year ago. Compared to August 2019, new home sales were down 6.3%. New home inventory increased 1.2% from July but was down 5.2% from a year ago.
New home supply increased to 7.8 months from a downwardly revised 7.0 months in July. August’s supply level was the highest level since March when mortgage rates were a half point lower but had been moving higher.
With the decline in existing home sales in August, total home sales were down 2.0% for the month and down 12.8% from the previous year. Pending home sales declined 7.1% in August as rising mortgage rates took a toll on new contracts signed on existing homes. Pending home sales were down 18.7% year-over-year. The National Association of Realtor’s chief economist Lawrence Yun called upon the Fed to “…consider the sharply decelerating rent growth in its consideration of future monetary policy. There is no need to raise interest rates.”
Consumer confidence declined again in September
The Conference Board Consumer Confidence Index fell by 5.2% in September, as future expectations plunged 11.5% but views of the present situation increased 0.3%. Consumer confidence was down 4.5% year-to-year following two back-to-back months of decline.
Plans to purchase a vehicle in the next six months declined but remained up from last year.
The confidence index did not fall as much during the pandemic as the sentiment index from the University of Michigan. Both series declined in August and September after improving in June and July. The Michigan index declined 2.0% for the month but was up 16% from last year.
The consumer’s view of buying conditions for vehicles declined to the lowest level since December with negative trends in the perception of prices and rates.
The daily index of consumer sentiment from Morning Consult also measured declining sentiment in September, as the index declined 2.1% from the end of August through September 29. Gas prices increased in July and August and were up slightly in September, so far. According to AAA, the national average price for unleaded gas has increased 0.4% to $3.83 per gallon as of September 28, which was up 1% from a year ago.
Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.