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  • US Economy
  • Housing
  • Power Tool Industry
  • Distribution
  • Canada
  • Market Trends
  • PDF

US Economy

US Economy September 2022

9/15/2022

 
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After racking up gains early in the month, markets tumbled during the last half, spooked by the Fed’s promise of more interest rate hikes to come. It was the weakest August performance in seven years. September is typically the weakest month for the markets.
 
Consumer Spending Inches up 0.1%
Consumer spending rose just 0.1% in July after rising a robust 1.0% in June. The increase in spending was well below expectations. Core consumer spending rose 0.2% in July after being unchanged in June. Consumer incomes rose 0.2% in July after rising 0.6% in June, but wages shot up 0.8% after increasing 0.6% in June. Gas prices continued to fall in July and consumers spent more on services than they did on goods. The saving rate was unchanged at 5%, still the lowest rate since 2009. Families seem to be slowly drawing down their savings to cope with higher prices. Spending on goods dropped again and spending on services rose modestly.
 
Consumer Prices Steady
The Consumer Price Index (CPI) was unchanged in July after rising an upwardly revised 1.3% in June and was up 8.5% year over year after being up 9.1% in June. Core inflation, which excludes the volatile food and energy categories, rose 0.3% in July after rising 0.7% in June and was up 5.9% year over year for the second consecutive month. Energy prices fell, with gasoline down 7.7% but the cost of food continued to climb, rising 1.1%. Overall the prices of goods fell 0.5% while the prices of services rose 0.3%. The PCE price index fell 0.1% in July after climbing 0.6% in June and was up 6.3% year over year. Core PCE inflation rose 0.1% in July and was up 4.6% year over year. The PCE price indexes are the Fed's favored measures for their 2% inflation target.
 
Consumer Confidence Rises to 103.2

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  • The New York-based Conference Board’s Consumer Confidence Index jumped to 103.2 in August after falling to a downwardly revised 95.3 in July.*
  • The rebound for the Index came after three consecutive months of declines, and exceeded expectations.
  • The Present Situation Index rose to 145.4 after falling to 139.7 in July.
  • The Expectations Index, based on short-term outlooks for income, business and labor market conditions, jumped to 75.1 from a nine-year low of 65.6 in July. Despite the increase, this Index remains historically low.
  • In May 2020 Consumer Confidence was 120.0. Consumer Confidence plummeted 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 3.7%
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  • The unemployment rate rose to 3.7% in August after falling to 3.5%. Unemployment was 3.5% at the start of the pandemic in March 2020.
  • The economy added a solid 315,000 new jobs* as job growth slowed from the red-hot pace of the previous months. Job growth was in line with expectations, and gains were widespread.
  • Average hourly earnings climbed 0.3%, and earnings were up 4.8% year over year.
  • July marked the 20th consecutive month of job growth.
  • Job openings rose in July to 11.2M from an upwardly revised figure for June. Total openings equate to 6.9% of employment, still well above the 4.5% rate averaged in 2019, according to the latest Job Openings and Labor Turnover Survey, or JOLTS report.
  • The ratio of job openings per unemployed worker rebounded back up to 2 jobs per every job seeker, This suggests demand for labor is weakening.
  • The jobs report provided some evidence that the Fed’s plan to reduce inflation without causing a recession is on the right track.
*The economy needs to create about 120,000 new jobs each month to keep up with growth in the working-age population.
  
Chicago PMI Falls to 51.2
The Chicago PMI fell to 51.2 in August after falling to two-year low of 52.1 in July. Nevertheless, it was the 26th consecutive month the index has remained in positive territory. A PMI number above 50 signifies expanded activity over the previous month. 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 0.5%
The producer price index (PPI) fell 0.5% in July after rising 1.1% in June and was up 9.8% on a yearly basis, down from a record 11.3% year-over-year increase in June. Economists surveyed were expecting a monthly jump of 0.3% and a 10.4% yearly increase. Stripping out the volatile categories of food, energy, and trade services, the PPI increased by 5.8%, down from 6.4% in June.
 
Q2 GDP Revised Up
GDP shrank 0.6% in the second quarter rather than the 0.9% decline first reported, according to the Commerce Department’s second reading. Over the past four quarters GDP is up 1.7%. Real consumer spending was revised up to show an increase of 1.5% compared to the 1.0% gain first reported. Spending on both durable and non-durable goods fell but spending on services rose sharply. Residential investment, or housing, fell at a 16.2% annual rate in the second quarter compared to a 0.4% annualized increase in the first quarter. The drop in the second quarter subtracted 0.83 percentage points from GDP. Businesses added to inventory at an $83.9 billion annual rate (in real terms) in the second quarter versus accumulation at a $188.5 billion rate in the second quarter. The slower accumulation reduced second-quarter growth by a very sizable 1.83%. The personal-consumption price index (PCE) rose at a 7.1% annualized rate, matching the first quarter. From a year ago, the index is up 6.5%. However, excluding the volatile food and energy categories, the core PCE index rose at a 4.4% versus a 5.2% increase in the first quarter. It was the slowest pace of increase since the first quarter of 2021. From a year ago, the core PCE index is up 4.8 percent. While back-to-back quarters of negative GDP growth is typically considered a recession, many economists say that while the economy is slowing, strong job growth and consumer spending don’t indicate a wide-spread recession.
 
Fed Sees More Rate Hikes Ahead
There are more rate hikes and more pain for the average American ahead, according to Fed Chairman Jerome Powell’s much-anticipated speech at the Fed’s annual conference in Jackson Hole. Analysts now believe the Fed will continue to aggressively raise rates into 2023 to bring down inflation and cool the economy without pushing it into a recession. Three-quarters of analysts believe the Fed will raise rates by another three-quarters of a percent at their next meeting in September, a big jump from a month ago when prices began coming down and just 25% of analysts expected another big hike. Consensus shows that most expect rates to level out at about 3.5% next year.
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