- New-vehicle sales lost momentum again on low inventory and high prices caused by the chip shortage.
- Inflation reached its highest level in 30 years as spending accelerated and income growth slowed.
- Consumer confidence falls; plans to purchase a vehicle down.
The declining trend in new daily COVID-19 cases continued last week, but consumer confidence still saw declines.
Consumer spending growth accelerated in August even as income growth slowed. Inflation in August, according to the Fed’s preferred measure, was at the highest level in 30 years.
The new-vehicle market lost more momentum in September. Pending home sales increased in August across every region in the country with the trends suggesting that existing home sales will be stronger in the fall.
New jobless claims increased again last week, but continuing claims fell in the latest data as well. An estimated 8.5 million Americans, who were previously on pandemic assistance, lost support in September.
Economic growth up: The third and final estimate of second-quarter real GDP resulted in an upward revision to growth of 6.7% annualized from the second estimate of 6.6%. Personal consumption was revised up to 12.0% from the second estimate of 11.9%. Spending on goods was revised up to a gain of 13.0% from the second estimate of 12.8%, while spending on services was revised up to 11.5% from the second estimated gain of 11.3%.
Gross private investment was revised to a decline of 3.9% from the second estimate of a decline of 4.0%. The government spending decline was revised larger to a decline of 2.0% from the second estimate decline of 1.9%. The modest revisions left real GDP growth year over year unchanged at 12.2%.
Spending accelerates: Consumer spending growth accelerated to 0.8% in August from a downwardly revised decline in July of 0.1% despite personal income growth slowing to a tiny 0.2% gain. Government transfer payments increased but at a slower rate, as unemployment benefits continued to decline.
Spending on durable goods declined 0.4% in August, but spending on nondurable goods increased 2.1%, and spending on services decelerated to a 0.6% increase from 1.1% gains in each of the prior three months.
Spending on motor vehicles and parts declined 6.3% in August following an even larger 6.8% decline in July.
The personal savings rate declined to 9.4% from 10.1% in July but 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 July, which was the same increase as the prior month. Overall price inflation according to the PCE increased to 4.3% year over year in August, which was the highest level since January 1991.
Home sales rise: Pending home sales, which are new contracts signed on existing homes, jumped 8.1% in August from July, leaving sales down 6.3% from a year ago. Sales were up in every region in the country. The increasing trends suggest existing home sales will be stronger in the fall.
New-vehicle sales slow: The pace of new-vehicle sales slowed again in September as the seasonally adjusted annual rate (SAAR) declined to 12.2 million from 13.1 million in August. It was the lowest SAAR since May 2020, and it was the lowest September since 2010. We will have a complete summary next week.
Employment picture mixed: As of September 19, 2.80 million Americans remain on traditional unemployment benefits, which are limited to at most six months of coverage. About 11.3 million people were on some form of unemployment benefits, including pandemic unemployment assistance as of September 4, which was when that assistance ended, leaving an estimated 8.5 million Americans unsupported. Initial claims increased last week to 362,000, after falling to a pandemic low three weeks earlier. Weekly claims remain elevated as they averaged 212,000 per week in 2020 in the weeks before the pandemic began.
Consumer sentiment drops: Consumer Confidence, according to the Conference Board, declined 5.1% in September and left confidence down 17.6% compared to February 2020. Confidence has declined for three straight months.
Plans to purchase a vehicle in the next six months declined to the lowest level in eight months and was much lower than a year ago. Plans to purchase a home also declined to the lowest level in three months and was also down from a year ago.
The sentiment index from the University of Michigan reported a 2.5% gain in September. However, the index of consumer sentiment from Morning Consult, which includes more recent data showed declines all summer including into September. The Morning Consult index declined 5.5% in July, another 3.1% in August, and ended September down another 0.8%. That left sentiment where we were in early February and down 20.2% from February 29, 2020.