Can The U.S. Economy Keep Up The Momentum?

It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:

#1—Uncertainty Weighs On Business Spending

In July, durable goods orders plunged 7.3%, steeper than the 4.5% drop forecast by economists. This followed the revised 3.9% gain that we saw in June. The biggest drag was a 52% plunge in civilian aircraft orders. Meanwhile, orders for motor vehicles and parts rose 0.5% from last month. Excluding transportation orders, durable goods declined 0.6%. Nondefense capital goods orders (also excluding transportation), also fell 3.3%. The key takeaway is that this is the first time in sixth months that nondefense capital goods orders have fallen. This metric is considered a gauge of business spending, so it appears that the private sector is less confident about the direction of the U.S. economy. Following the report, several economists cut their estimates for third-quarter economic growth.

#2—American Consumers Get A Confidence Boost

In August, the Conference Board’s consumer confidence index ticked up to a reading of 81.5, up from a revised reading of 81.0 in July. This trumped expectations; economists had expected a reading of 77.0. The primary driver was the consumer expectations index, which climbed to a reading of 88.7 in August, up from 86.0 the prior month. 33% of consumers polled by the Conference Board said that jobs are "hard to get" in August, down from 35.2% last month. After the disappointing durable goods report, these favorable consumer confidence numbers were somewhat of a relief. To put it into perspective, the index is near its multi-year high of 82.1—which was reached in June. I’m hoping that increased confidence drives higher consumer spending in the third quarter, offsetting the effects of declining business spending.

#3—Layoff Activity Trends Downward Yet Again

Last week, jobless claims declined by 6,000 to an annual rate of 331,000. This was better than the consensus estimate, which called for an annual rate of 335,000. Meanwhile, the four-week moving average inched up 750 to 331,250. With the payroll data so mixed nowadays, it’s encouraging to see jobless claims continue to trend downward. The four-week moving average is still hovering around a multi-year low. Layoff activity has fallen to a level not seen since late 2007—the beginning of the financial crisis.

#4—First-Quarter Showers Bring Second-Quarter Flowers

Second-quarter GDP has been revised to 2.5% growth, sharply higher than the advance estimate of 1.7%. Economists had expected the economy to expand by 2.1% in the second quarter. The increase was chalked up to higher business and consumer spending and an improving trade deficit. As usual, government spending continued to drag GDP down, especially at the federal level. This is good news for the U.S. jobs market—it usually takes a 2% annual rate to make the unemployment rate decline. However, keep in mind that economists have just reduced their estimates for the third quarter, so it’s not a given that we’ll see this growth last.

#5—Slow But Steady Personal Income Growth

In July, personal income and spending climbed by 0.1%. So while income was in line with economist expectations, spending was under the expected 0.3% growth. The savings rate remained at 4.4%, unchanged from the previous month. Since consumer spending accounts for approximately two-thirds of GDP growth, both rising personal income and consumer spending bode well for steady second-quarter GDP growth. So while this report wasn’t great, we do continue to see slow-but-steady growth.

#6—University of Michigan Confirms Consumer Sentiment

According to the Thomson Reuters/University of Michigan’s final reading on the overall index, consumer sentiment retreated to 82.1 in August from 85.1 July. However, this topped an initial mid-month reading of 80.0 and exceeded economists’ expectations for a final read of 80.0. This was largely in line with the consumer confidence numbers from the Conference Board, and I’m expecting to see continued upticks in confidence after the Labor Day holiday as people start to focus on the holidays.

Have a nice weekend!

Sincerely,

Louis Navellier

Louis Navellier

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