U.S. Economy June 2023

Markets struggled near the end of May as the debt ceiling loomed, no final deal was approved and the markets worried that dissenting fringes might hold up the vote and insist on changes that couldn’t be approved before the June 5 extended deadline imposed by Treasury Secretary Janet Yellen. The tech-heavy Nasdaq was boosted by excitement around the potential impact of artificial intelligence.
 
Consumer Spending Rises 0.8%
Consumer spending jumped 0.8% in April after an upwardly revised 0.1% gain in March. Core consumer spending rose 0.5%. The increase was greater than expected. Spending rose on services and vehicles, and was driven partially by strong wage growth. Consumer spending was included in the first report for Q1 GDP, which showed that consumer spending surged 3.7% in the first quarter.
 
Consumer Prices Rise 0.4%
The Consumer Price Index (CPI) rose 0.4% in April after rising 0.1% in March. Consumer prices were up 4.9% year over year after being up 5.0% in March. The year-over-year increase was the smallest since 2021 and the tenth consecutive month that year-over-year inflation has cooled down. Core inflation, which excludes the volatile food and energy categories, rose 0.4% in April for the second consecutive month and fell to 5.5% year over year from 5.6% in March. Though inflation is gradually slowing, it remains well above the Fed’s preferred level of 2.0%.
The personal expenditures price index (PCE) rose 4.4% year over year in April after being up 4.2% in March. Core prices, which exclude volatile food and energy categories, rose 4.7% year over year in April after rising 4.6% in March. Economists see core inflation as a better predictor of future inflation than overall inflation. The Fed tracks the PCE price indexes for monitoring their 2% inflation target.
 
Consumer Confidence Falls to 102.3 

• The New York-based Conference Board’s Consumer Confidence Index fell to 102.3 in May from an upwardly revised 103.7 in April. *
• The Present Situation Index fell to 148.6 in May from an upwardly revised 151.8 in April.
• The Expectations Index, based on short-term outlooks for income, business and labor market conditions, fell to 71.7 in May from an upwardly revised 71.7 in April. A level of 80 or below indicates consumers expect a recession.
• In May 2020 Consumer Confidence was 120.0 but 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 3.7% 

• ​The unemployment rate rose to 3.7% in May after falling to 3.4% in April. Unemployment was 3.5% at the beginning of the pandemic in March 2020.
• The economy added 339,000 new jobs, nearly twice the number forecast. Job growth for April was revised up 294,000 from the 253,000 jobs first reported. It was the 29th consecutive month of job growth.
• The economy continues to add jobs at a steady clip while holding unemployment at historically low levels despite rising interest rates, banking turmoil, tech layoffs and debt ceiling negotiations.
• Wage growth continued to cool off while still running above pre-pandemic levels.
• Job gains were widely spread across many sectors.
• Data from the Job Openings and Labor Turnover Survey (JOLTS) showed that after a few months of job openings consecutively falling job openings soared by 358,000 to 10.1 million. Job openings had been below 10 million in February and March.

 
Chicago PMI Falls to 40.4
The Chicago PMI fell to 40.4 in May after rising to 48.6 rose to 48.6 in April. The unexpectedly large decline left the index well below 50, the level that signifies expansion, for the ninth consecutive month. A PMI number above 50 signifies expanded activity over the previous month; this was the sixth consecutive reading below 50, the level which indicates contraction. 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 Rise 0.2%
The Producer Price Index (PPI) rose 0.2% in April after falling 0.5% in March and was up 2.3% year over year, down from a 2.7% year-over-year increase in March. It was the mildest year-over-year increase since January 2021. Stripping out volatile food and energy prices, core PPI rose 0.2% in April after dropping 0.1% in March and was up 3.2% year over year after being up 3.4% year over year in March. The PPI peaked at a whopping 11.7% year-over-year increase in March 2022.
 
Q1 GDP Revised Up to 1.3% Growth
Q1 GDP was revised up to 1.3% growth from the anemic 1.1% growth first reported, according to the second reading from the Commerce Department. GDP grew 2.5% in the fourth quarter of 2022. Most of the growth in the first quarter was spearheaded by consumer spending, the main engine of the economy. Spending rose at a strong 3.8% clip after an initial 3.7% reading. Real GDP is still expected to decline in the fourth quarter of this year and the first quarter of 2024 and send the country into a mild recession, according to minutes from the Fed Board that came out prior to the GDP reading. However, that forecast was based on GDP gradually declining in the first three quarters of the year.

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