Markets digested a light lineup of economic data on the holiday-shortened week. Our second look at first quarter GDP revealed an economy increasingly pressured by high interest rates as headline growth was revised down to 1.3% from 1.6% previously. Peeking under the hood, it was a further pullback in consumer goods spending that was ultimately responsible for the weaker showing. Durable goods spending contracted at a 4.1% annualized rate compared to 1.2% in the first estimate. The larger services spending category held firm, rising at a 3.9% annualized rate, indicating consumer spending is not in a complete retreat. Alongside the GDP revisions, corporate profit data showed profitability softened in Q1 but remains strong on-balance. The profit outturn was not entirely unexpected as comments accompanying Q1 earnings releases of Fortune 500 companies warned of consumer momentum abating.
To that end, the April Personal Income and Spending report suggested consumers may be taking their foot off the gas as they round into Q2. Headline income growth was relatively muted, rising 0.3% in April, and once adjusting for inflation, real disposable income dipped 0.1% over the month. Inflation-adjusted spending declined 0.1% over the month, led lower by declines in real goods spending. More specifically, spending on gasoline and recreational goods pulled back, hinting that consumers are spending less time traveling and going out. Services spending eked out a 0.1% gain, but this was owed to increases in non-discretionary spending categories such as housing and healthcare. Discretionary services spending moved lower as consumer spending habits seem to be turning more selective, sentiments that are echoed in the Fed’s recent Beige Book which we cover in Topic of the Week.
Markets got another read of inflation data as the both the year-over-year PCE and core PCE deflators were unchanged at 2.7% and 2.8%, respectively. At first take, the data do not show the “meaningful progress” on inflation the Fed is looking for, but it is at least consistent with cooling price growth, particularly for services. “Super-core” inflation, which strips out housing from core services, rose at a 3.6% three-month annualized rate, down from 5.4% in March. If sustained, the slowing in discretionary services spending should help rein in services inflation. Continued softening in price pressures leaves the door open for the Fed to cut rates later this year, but further progress is needed.
Last week’s existing and new home sales data underscored how deteriorating affordability conditions are suppressing demand in the housing sector. This week’s batch of housing market data served to reinforce this trend. Despite some increases in inventory heading into the spring selling season, home price growth has yet to cool. Nationally, home prices advanced 6.5% over the year in March per the latest data from S&P CoreLogic. Ongoing price appreciation has pushed home prices 2.7% above their previous June 2022 peak. What’s more, price appreciation seems to be accelerating even in the face of lagging sales and growing inventory. Seasonally adjusted home prices grew at a three-month annualized rate of 4.9% in March, up from a 3.5% run rate in January. Rising prices combined with mortgage rates averaging north of 7% for the past two months have resulted in a broad retreat in homebuying.
Leading indicators for the housing market signal that the route is likely just beginning. The NAR’s Pending Home Sales Index, which leads existing home sales by one to two months, slid 7.7% over the month, the largest decline in over three years. Furthermore, mortgage applications for purchase fell to a three-month low in May. Homes sales are still running above recent lows, but until affordability conditions improve—whether through increasing inventory and/or accommodative monetary policy—the housing market will likely remain in stall speed.
September 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Sep 19, 2020
A March survey by the Federal Reserve Bank of Dallas found most exploration firms need West Texas Inter-mediate (WTI) at $49 per barrel or higher to profitably drill a well.
This Week's State Of The Economy - What Is Ahead? - 05 February 2021
Wells Fargo Economics & Financial Report / Feb 10, 2021
Nonfarm employment rebounded in January, with employers adding 49,000 jobs following the prior month\'s 227,000-job drop.
This Week's State Of The Economy - What Is Ahead? - 04 August 2023
Wells Fargo Economics & Financial Report / Aug 09, 2023
Employment growth was broad-based, though reliant on a 87K gain in health care & social assistance. Modest gains from construction, financial activities and hospitality also contributed to private sector job growth.
This Week's State Of The Economy - What Is Ahead? - 06 January 2023
Wells Fargo Economics & Financial Report / Jan 12, 2023
During December, payrolls rose by 223K while the unemployment rate fell to 3.5% and average hourly earnings eased 0.3%. Job openings (JOLTS) edged down to 10.46 million in November.
This Week's State Of The Economy - What Is Ahead? - 28 February 2020
Wells Fargo Economics & Financial Report / Feb 29, 2020
The COVID-19 coronavirus hammered financial markets this week and rapidly raised the perceived likelihood and magnitude of additional Fed accommodation.
This Week's State Of The Economy - What Is Ahead? - 14 April 2023
Wells Fargo Economics & Financial Report / Apr 20, 2023
In March retail sales fell 1.0%, manufacturing production slipped 0.5% and the consumer price index rose a modest 0.1%.
May 2020 Economy at a Glance
Wells Fargo Economics & Financial Report / May 19, 2020
The U.S. is in a severe recession caused by the sudden shutdown due to the COVID-19 pandemic. Since the lock down began, the nation has lost 21.4 million jobs.
This Week's State Of The Economy - What Is Ahead? - 19 July 2024
Wells Fargo Economics & Financial Report / Jul 22, 2024
Retail sales, housing starts and industrial production all surprised to the upside this week.
This Week's State Of The Economy - What Is Ahead? - 02 September 2022
Wells Fargo Economics & Financial Report / Sep 05, 2022
More job seekers also lifted the participation rate to 62.4% and thus easing some tightness in the job market even as payrolls expanded.
This Week's State Of The Economy - What Is Ahead? - 18 March 2022
Wells Fargo Economics & Financial Report / Mar 21, 2022
it was a big week for economic news as the Astros allowed the TWINS of all teams to sign Carlos Correa to the type of short-term deal that the Astros have historically been open to.
