US Economy July 2024

Stocks ended June on a positive note as markets digested economic reports and forecasts. Second quarter results were mixed, with the DOW down 1.7% for the quarter but the NASDAQ up 6.0% and the S&P, the index most closely watched by professionals, up 3.9%.
 
Consumer Spending Rises 0.2%
Consumer spending inched up 0.2% in May after rising a downwardly revised 0.1% in April. Adjusted for inflation, real consumer spending rose 0.5% in March and spending for February was revised up from a gain of 0.4% to 0.5%. Services spending increased 0.4% and goods spending rebounded, increasing 0.2% after falling 0.5% in April.  Personal income increased 0.5% after climbing 0.3% in April. Wages shot up 0.7%, which some economists said could concern policymakers. Income at the disposal of households after accounting for inflation and taxes rose a solid 0.5%. Consumers saved more, lifting the saving rate to 3.9% from 3.7% in April. Spending adjusted for inflation rebounded 0.3% after slipping 0.1% in April.
 
Consumer Prices Steady
The Consumer Price Index (CPI) was unchanged in May after rising 0.3% in April and year-over-year inflation slowed to 3.3% in May after dropping to 3.4% in April. Core prices rose 0.2% in May after rising 0.3% in April and year-over-year inflation cooled to 3.4% from 3.6% in April. Core goods prices were unchanged, and core services prices rose just 0.2%, the smallest monthly increase since September 2021. Results were better than expectations and cheered markets. The core CPI inflation rate peaked at a 40-year-high of 6.6% in September 2022.  The personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, held steady in May after rising 0.3% for the previous three consecutive months and was up 2.6% year over year, down slightly from 2.7% in April. Core PCE edged up 0.1% and was up 2.6% year over year.
 
Consumer Confidence Slips to 100.4

• The New York-based Conference Board’s Consumer Confidence Index slipped to 100.4 in June after rising to a downwardly revised 101.3 in May.*
• The Present Situation Index increased to 141.5 from a downwardly revised 140.8 in May.
• The Expectations Index fell to 73.0 in June after rising to an upwardly revised 74.9 in May. A level of 80 or below historically indicates consumers expect a recession.
• Confidence remained within the same narrow range it’s been for the past two years as strength in the current job situation continues to outweigh concerns about the future.
• Consumer Confidence fell to 86.9 at the onset of the pandemic in March 2020.

*A level of 90 indicates that the economy is on solid footing; a level of 100 or more indicates growth. Analysts caution that the real driver behind consumer spending is income growth and that labor market trends are a more accurate predictor of consumer behavior.
 
Unemployment Rises to 4.1% 

• The unemployment rate rose to 4.1% at the end of June after rising to 4.0% at the end of July. The May report was the first time the unemployment rate reached 4.0% since January 2022. Unemployment was 3.5% at the beginning of the pandemic in March 2020.
• The economy added 206,000 new jobs, slightly below expectations and down from 272,000 new jobs in May. It was the 21st consecutive month of job growth.
• The job market is slowing at a pace that indicates it is performing in accordance with the Fed’s projections and cooling off over time.Wage inflation also eased in June, with average hourly earnings slowing as expected to 3.9% from 4.1% in May.

Chicago PMI Rises to 47.4
The Chicago PMI rebounded in June, rising to 47.4 after falling to 35.4 in May. The increase, which left the index below the break-even point of 50, came after three consecutive months of decline. Economists had expected the PMI to climb to 40.0. The Index has been below the break-even midpoint of 50 for the past 20 months. Looking back to when the series began in 1967, the PMI has ranged from 20.7 in June 1980 to 81.0 in November 1973. 
 
Wholesale Prices Fall 0.2%
The Producer Price Index (PPI) fell 0.2% in May after rising 0.5% in April and was up 2.2% year over year, down slightly from 2.3% in April. Stripping out volatile food and energy prices, core PPI was unchanged in May after rising 0.5% in April and up 2.3% year over year, down slightly from 2.4% in April. PPI peaked at an 11.7% year-over-year increase in March 2022.
 
Q1 GDP Grows 1.4%
First quarter 2024 GDP was revised up to 1.4% growth in the third and final reading from the Commerce Department. That’s up slightly from the second reading, but still down from the 1.6% growth first reported. It was the smallest quarterly increase in nearly two years. The major contributor to the anemic growth was slowing consumer spending. Initial readings show the economy has actually accelerated slightly in the second quarter, which ends in June. The major culprits behind anemic growth I the first quarter were weaker consumer spending, a growing trade deficit and slower growth in inventories. 
 
Fed Holds Rates Steady
The Fed held interest rates between 5.25% and 5.5% for the seventh consecutive meeting at their latest policy meeting in June and signaled that it’s likely that there will be only one interest rate cut this year. The Fed stated they need to see more progress towards bringing inflation closer to their 2% target. Analysts believe the Fed will need greater confidence that inflation is returning to 2% on a sustained basis before the central bank feels comfortable lowering rates. Market consensus is that will not happen until the Fed’s meeting in mid-September at the earliest. Fed officials estimate their preferred measure of annual inflation, the personal consumption expenditures (PCE) index, will fall from 2.7% to 2.6% by December, stubbornly above the 2.4% they predicted in March. A core PCE inflation reading that the Fed watches more closely is expected to hold steady at 2.8% by the end of the year, above the prior 2.6% estimate. Both overall inflation and the core measure are projected to fall to 2.3% by the end of 2025.

Next Section

​© Robert Bosch Tool Corporation.  All rights reserved, no copying or reproducing is permitted without prior written approval.