- Consumer spending increases, likely prompting the Fed to tighten more to rein in inflation.
- Job market shows no stress from the Fed’s monetary tightening, also suggesting even more tightening.
- Consumer sentiment improved, until stock prices dropped and gas prices rose.
September ended with negative mojo. Damage from Hurricane Ian is just now being assessed in Florida and South Carolina. Economic indicators were mixed.
The final estimates for second-quarter economic growth as measured by GDP left the 0.6% decline unchanged, but consumer spending was revised up and was stronger than expected as inflation accelerated in the core gauge the Fed follows most closely. Personal income was stable, as was the savings rate.
The good news is that consumer spending increased more than previously estimated, but it is also bad news as the Fed will think more tightening will be required to rein in inflation.
New home sales increased in August but pending home sales declined. Total homes sales were up 2.5% in August but down 18% from a year ago.
Initial and continuing jobless claims declined in the latest data and remain low by historical standards.
Consumer sentiment metrics were mixed in September, but the timeliest readings indicated softening in the last two weeks as stocks declined, rates increased, and gas prices increased.
Decline in Q2 Real GDP Unchanged after Revisions; Year-Over-Year Growth Increased Slightly
The decline in the second quarter real GDP was unchanged at an annualized decline of 0.6% in the third and final estimate.
Personal consumption was revised up to an increase of 2.0% from the second estimate of 1.5%. Spending on goods was revised down to a decline of 2.6% compared to the 2.4% decline. Spending on services was revised up to a gain of 4.6% from 3.6%. Gross private investment was revised down to a decline of 14.1% from 13.5%.
The revisions caused real GDP growth year over year to increase to 1.8% from 1.7%.
Consumer Spending Rises While Personal Income Growth Remains Stable
Consumer spending increased in August and was stronger than expected with nominal growth of 0.4% from a downwardly revised declined of 0.2% in July.
Personal income growth was stable with an upwardly revised 0.3% growth in July. Employee compensation growth decelerated to 0.3% in August, but government transfer payments increased. Proprietors’ income growth also increased. Spending on durable goods was unchanged in August, spending on nondurable goods declined 0.8%, and spending on services increased 0.8%.
Spending on motor vehicles and parts increased 1.0% reversing a 1.3% decline in July.
The personal savings rate was unchanged at 3.5% and remains near the lowest level in 14 years. The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.3% in August, reversing a 0.1% decline in July and was larger than the 0.1% consensus estimate.
Overall price inflation, according to the PCE, decelerated to 6.2% from a year ago in August from 6.4% in July, while the core inflation rate increased to 4.9% from 4.6% in July. Factoring in inflation, real spending increased 0.1% in August, which was the same as July.
Surprisingly, New Home Sales Increased in August
New home sales, which are based on new contracts signed on newly constructed homes, increased in August when a decline had been expected, and July sales were also revised up.
New home sales at an annualized pace of 685,000 were down 0.1% from a year ago. Compared to August 2019, new home sales were down 2.0%.
New home inventory increased 0.4% from July and was up 23.3% from a year ago. New-home supply declined to 8.1 months, which remains higher than what is considered normal.
In August, 28% of the new homes sold were on homes not yet started, while 43% were under construction, and 29% were completed units. With existing home sales declining but new home sales increasing in August, total home sales were up 2.5% for the month but down 17.8% from a year ago.
Pending home sales, which are new contracts signed on existing homes, declined about as expected with a 2.0% drop in August from July when a decline of 1.5% had been expected and the prior month was revised up. With the decline, pending sales were down 22.5% from a year ago.
Job Market Remains Strong with Jobless Claims Declining
Seasonally adjusted initial jobless claims declined by 16,000 to 193,000 for the week ending September 24. Non-seasonally adjusted claims declined by 13,000. Both measures had been increasing this summer but are now on a downward trend. Both seasonal and nonseasonal numbers are again lower than they were in the beginning of 2020 before the pandemic began.
Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation declined by 29,000 from the week earlier, bringing the total down to 1.35 million as of the week ending September 17. That level of continuing claims was 416,000 lower than it was prior to the pandemic.
The broadest measure of continuing claims increased by 7,000 to 1.30 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 136,000 over the last 4 weeks and is 800,000 lower than the pre-pandemic level. The job market is not showing any stress from the Fed’s monetary tightening, and that suggests even more tightening.
Consumer Sentiment Trends are Mixed
Consumer Confidence, according to the Conference Board, increased 4.2% in September. Both underlying measures of present situation and expectations saw gains, but expectations improved the most.
Plans to purchase a vehicle in the next six months increased and was up from a year ago.
The sentiment index from the University of Michigan saw a slight gain in September. The Michigan index increased 0.7% with only views of current conditions improving.
The timelier daily index of consumer sentiment from Morning Consult declined in September with moves down in most of the last 14 days. That index was down 0.7% for the month. Stock market declines and gas price increases caused the more recent decline.
Register Now: Join Cox Automotive Chief Economist Jonathan Smoke and Chris Frey, senior manager of economic and industry insights, on Friday, Oct. 7, at 11 a.m. EDT, as they discuss the latest Manheim Used Vehicle Value Index and the major economic and industry trends that shaped the quarter. Jonathan and Chris will be joined by Jeremy Robb, senior director of business intelligence at Cox Automotive, who will highlight key wholesale pricing and sales conversion metrics. Register to attend.
Jonathan Smoke is chief economist at Cox Automotive.