NAM: Monday Economic Report
New orders for durable goods declined 1.3% in April, falling for the first time in 12 months, largely on supply chain disruptions in the motor vehicles and parts sector. Excluding transportation equipment, new durable goods orders rose 1.0% in April.
Overall, the durable goods sector is growing rapidly, with significant gains since declining sharply last spring due to the COVID-19 pandemic. Indeed, durable goods orders have jumped 6.6% over the past 14 months, or 15.1% with transportation equipment excluded.
In addition, nondefense capital goods excluding aircraft—a proxy for capital spending in the U.S. economy—rose 2.3% from $73.3 billion to $75.0 billion in April, another new record. Core capital goods orders have soared 15.6% over the past 14 months, as firms have ramped up activity on the brighter economic outlook.
Manufacturers in the Kansas City and Richmond Federal Reserve Bank districts continued to report solid expansions in activity, with an optimistic outlook. Yet, raw material costs have soared, with prices for finished products also up sharply. Respondents also noted supply chain and logistics constraints as well as workforce recruitment challenges among their concerns.
The PCE deflator rose 0.6% in April, and excluding food and energy prices, it increased 0.7% for the month, the most since October 2001. Overall, the PCE deflator has risen 3.6% year-over-year, the most since September 2008, and core inflation has increased 3.1% since April 2020, the fastest pace since July 1992.
To be fair, there are “base effects” that are skewing these inflation data, with deflationary pressures in the comparison month last year. Since February 2020, the PCE deflator has risen 2.8%, with core inflation up 2.5% over the past 14 months. Even with this adjustment, it is clear that cost pressures have accelerated.
Consumer confidence slipped to a three-month low, according to the University of Michigan and Thomson Reuters, largely on worries about inflation. A competing measure from the Conference Board edged marginally lower on some anxieties about future labor and income prospects, but both of these reports reflect improvements in consumer sentiment in recent months overall.
After soaring by a record-breaking 20.9% in March, fueled by stimulus checks to many Americans, personal income pulled back by 13.1% in April. More importantly, personal income has jumped 7.7% year to date, with wages and salaries up 4.4% since December 2020. At the same time, personal spending increased 0.5% in April, with 4.6% growth since February 2020.
The personal saving rate remains very elevated despite slipping from 27.7% in March, an 11-month high, to 14.9% in April. The saving rate averaged 7.5% in 2019, essentially half of the current rate.
The U.S. economy grew 6.4% at the annual rate in the first quarter, unchanged from the previous estimate. Real GDP remains just 0.9% shy of the pre-pandemic levels seen at the end of 2019, and the U.S. economy should return to that pace in the current (second) quarter, even as growth remains well below trend (of where it would have been without COVID-19).
The current forecast is for 6.5% growth in 2021 overall, boosted by more Americans getting vaccinated, pent-up consumer and business demand and government stimulus.