NAM: Monday Economic Report
The Weekly Toplines
The U.S. economy grew 6.6% at the annual rate in the second quarter, buoyed by consumer spending and nonresidential fixed investment, with both continuing to rebound solidly. At the same time, faster growth was held back by federal government spending, net exports, residential investment and spending on inventories.
More importantly, real GDP is now 0.8% above the pre-pandemic levels seen at the end of 2019, a relatively quick turnaround given the magnitude of the decline in activity seen in the recession in February to April 2020. The current forecast is for 6.0% growth in 2021 overall, with real GDP rising 4.1% in 2022.
New orders for durable goods edged down 0.1% in July from a record level in June, but headline growth was pulled lower by a sharp reduction in nondefense aircraft and parts sales, which can be highly volatile from month to month. Excluding transportation equipment, new durable goods orders increased 0.7% to a record $181.9 billion in July. Core capital goods spending also inched up ever so slightly to a record $76.53 billion.
Overall, durable goods orders have risen sharply since February 2020, jumping 11.4% over the past 17 months, or 18.1% with transportation equipment excluded.
After expanding at a record pace in July, the IHS Markit Flash U.S. Manufacturing PMI slowed a bit in August but continued to grow robustly. The rapid increase in the delta variant is having some dampening impacts, especially in the service sector. With supply chain challenges and strong demand, raw material costs and output prices both soared again at all-time-high rates.
The PCE deflator rose 0.4% in July, down from gains of 0.5% in both May and June. Overall, the PCE deflator has risen 4.2% year-over-year, the most since January 1991, and core inflation has increased 3.6% since July 2020, the same year-over-year pace as in June and the fastest pace of inflation since May 1991.
I continue to expect the Federal Open Market Committee to start the process of tapering its asset purchases at its next meeting in September, with a possible interest rate hike in mid-2022. Federal Reserve Chair Jerome Powell’s speech on Friday sets the stage for this to happen.
Personal income rose 1.1% in July, the strongest monthly gain in four months, with 8.7% growth since February 2020. Manufacturing wages and salaries increased 1.2% in July, or 4.1% over the past 17 months.
Meanwhile, personal consumption expenditures slowed to 0.3% growth in July, with reduced durable and nondurable goods spending. Still, personal spending has increased a solid 7.1% since February 2020. The saving rate remains elevated at 9.6%.
Existing and new home sales increased in July, even as both have seen dampened activity since the spring on affordability issues. Inventories of homes for sale have increased, and yet, the median sales price in July was at or near a record high.