A look back at the September 23 week shows the economic data got lost behind the scandal associated with Mr. Trump’s phone call to the President of Ukraine and the onset set of an outright impeachment investigation. Aside from that, there was also a great deal of attention on the Federal Reserve and the New York Fed’s overnight and term repurchase operations. These were heavily subscribed. It is unclear whether it was due to a need for overnight cash or to ensure there was cash on hand at quarter-end, or if the activity as simply an abundance of caution after being caught short a week either. In any case, the Fed’s package of daily repurchase operations through October 10 should satisfy demand for liquidity.
The economic news during the week indicated that the outlook is cloudy. There were a few bright spots, but these tended to be for August numbers, not the more current ones for September.
The third estimate of second quarter GDP was unchanged at 2.0% form the second estimate. Revisions were small and offsetting. However, the third quarter is reaching its end, putting this report well into the rear view. It was mainly consumer spending that supported growth in the second quarter and that is shaping up to be the case in the third as well.
Data on personal income was for another month of modest increases at up 0.4% in August buoyed by a solid 0.6% rise for wages and salaries. Overall personal consumption expenditures edged up only 0.1% in August, but it was softness in nondurables rather than weakness elsewhere that kept the total down. Durables spending gained 0.7% and services were up 0.2%. Nondurables dipped 0.2%, probably on the declines in gasoline prices. So consumers were out buying, it’s just that some of their spending was less costly.
The PCE deflator – the Fed’s preferred measure of inflation – was up 1.4% compared to August 2018. This would suggest that inflation is running well below the symmetric 2% objective, possibly enough to justify another rate cut this year. However, the core PCE deflator – which Fed policymakers pay more attention to – was up 1.8% compared to last year. This was up a tenth from July and within reach of the objective.
Consumer confidence has taken a hit in the past few months. Although the respective Consumer Confidence Index and Consumer Sentiment Index readings through September have remained elevated in the historical context, it is clear that the giddiness of 2018 is past and not coming back. Consumers still have a lot to like with a strong labor market, affordable mortgage interest rates, and low gasoline prices. However, doubts about the continuance of the long expansion are creeping in and the negative news cycle is adding to greater concerns about the future. The declines probably aren’t enough to choke off consumer spending quite yet, but retailers should be cautious about a few months from now when the holiday shopping season is supposed to be at its height.
Initial jobless claims for the week ended September 21 were pretty much on trend for recent week. There was virtually no impact from Hurricane Dorian. That story may change with the flooding associated with Hurricane Imelda in Texas and neighboring states. Adding to the upside rise for coming weeks is the strike at GM. The dip in the insured rate of unemployment to 1.1% in the September 14 week is not expected to last into the coming week.
Data for sales of new single-family homes in August were well above expectations with a 7.1% increase to 713,000 and were up 18.0% compared to the year-ago month. Existing home sales for August were reported in the prior week and were also above expectations. On top of this, the NAR’s Pending Home Sales Index rose by 1.6% to 107.3, also exceeding expectations and adding to anticipation that sales will remain strong into September. It is a little further back, but the FHFA House Price Index for July showed that home prices remain on the rise, if at a less vigorous pace than might be desired. Mortgage interest rates continued to nearly three year lows into August. Rates have been a bit higher in September due to some technical factors. However, the increase earlier in the month appears to have faded.
The September surveys for the manufacturing and service sectors were at best middling for current conditions. While services have felt the bite of unsettled trade policy less than manufacturing, the September numbers suggest that is starting to change. Importantly, the respective indexes for conditions six months from now are trending low. There is less possibility of a rebound seen on the horizon.
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