Six Reports That Prove the Customer Is Always Right

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:

Consumer Confidence Report

In July, the consumer confidence index surged to 90.9, up from a revised 86.4 in June. July’s reading came well above economists’ expectations of 86.5. Breaking it down, the current conditions index increased from 86.3 to 88.3, while the future expectations index jumped from 86.4 to 92.7. Overall, it is clear that improving job growth is helping to boost consumer confidence. Going forward, consumer spending will likely account for the lion’s share of economic growth.

Second-Quarter GDP (Advance Estimate)

During the second quarter, U.S. Gross Domestic Product (GDP) grew at a whopping 4% annual pace. The consensus estimate had called for a 3.2% annual rate so this was well above expectations. The biggest positive factor was consumer spending, which accelerated to a 2.5% annual pace in the second quarter, up from 1.2% in the first quarter. Inventories also increased by $93.4 billion, boosting Q2 GDP growth by 1.66%. The only component that really dragged on GDP growth was trade; during the second quarter, imports rose 11.7% while exports ticked up 9.5%.

The surge in consumer spending was particularly significant. Part of the increase can be attributed to stronger healthcare spending as the ACA is being implemented. Meanwhile, spending on big ticket items like vehicles and home furnishings posted its largest increase since 2009. This is great news. The “bad news” from this report is that it appears that inflation is officially back. The Personal Consumption Expenditure (PCE), which is one of the Fed’s favorite inflation indicators, rose at a 2.3% annual pace. So all eyes will now be on the Fed as it weighs when to start raising key interest rates.

Initial Claims for Unemployment

For the week ending July 26, initial claims for unemployment jumped by 23,000 to a 203,000 annual rate. This was actually a less dramatic increase than expected; economists had predicted a 310,000 annual rate. The four-week moving average fell by 3,500 to 297,250. The previous week’s jobless claims number was revised lower from 284,000 to 279,000. The big takeaway from this report is that despite the weekly increase, the four-week moving average is now at the lowest level since April 2006. By that measure, layoff activity is at an eight-year low.

Unemployment Rate Report

In July 209,000 payroll jobs were created, slightly less than economists’ estimates of 233,000 new jobs. Breaking the data down by industry, the biggest boost came from professional and business service, manufacturing, retail and construction. Meanwhile, the unemployment rate ticked up from 6.1% to 6.2%. The average workweek remained unchanged at 34.5 hours. While the payroll number left something to be desired, the details of this report were stronger. These results mark the sixth-consecutive month that over 200,000 jobs were created. The other good news was that the payroll data for May and June were revised higher by 15,000 additional jobs. Finally, the fact that the unemployment rate edged up suggests that more Americans are returning to the workforce.

Personal Income

In June, both consumer income and spending advanced 0.4%. The gain in personal income underperformed economists’ expectations of a 0.5% increase while the rise in spending was above the 0.2% consensus estimate. Meanwhile, May consumer spending was revised higher to a 0.3% gain, up from 0.2% earlier. With income and spending moving in tandem, the personal savings rate remained unchanged at 5.3%. This is good news overall. The increase in income suggests an improving jobs situation and the rise in consumer spending points to increased confidence.

Construction Spending

In June, construction spending declined 1.8% from May to an annual rate of $950.2 billion. This was a steeper-than-expected drop; economists had expected a 0.5% decline. The main culprits were a 1.4% drop-off in single-family construction and a 4% plunge in government construction spending. These declines offset a 2.5% rise in apartment construction. Once again, the headline result wasn’t good, but the details were much better. This represents the largest setback in construction sending since January 2011, when it plunged 2.8%. Then again, May construction spending was revised higher to reflect a 0.8% gain (compared with 0.1% growth earlier). Even with the latest decline, housing construction spending has grown 7.4% over a year ago. Non-residential construction spending (like hotel and retail space) is 11.2% above where it was a year ago.

Have a nice weekend,

Louis Navellier

Louis Navellier

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