Personal income rose 6.6 percent (annualized rate) in July, following June’s 4.8 percent increase. Wages and salaries increased 5.5 percent in July, down slightly from June’s 6.3 percent increase, but still up 7.2 percent over July 2006. Consumer spending rebounded from a 10-month low of 2.0 percent in June, rising 4.8 percent in July.
The Personal Consumption Expenditure (PCE) Price Index rose 1.0 percent (annualized rate) in July, following June’s 1.8 percent increase, and retreating from the year-to-date average increase of 3.5 percent. The PCE prices excluding food and energy (core PCE) increased 1.6 percent, falling slightly from a 1.8 percent increase in June. The 12-month growth rate in the core PCE price measure remained at a 40-month low attained in June of 1.9 percent.
The University of Michigan’s Index of Consumer Sentiment fell 7 points in August to 83.4 from 90.4 in July. Both the current economic conditions and consumer expectation components worsened in August, falling 6.1 points and 7.8 points to 98.4 and 73.7, respectively. Short-term average inflation expectations indicate that households expect an elevated 4.0 percent rate of inflation over the next year, although this is down slightly from 4.2 percent in July. Over the longer term (5 to 10 years ahead) expectations are for a 3.4 percent rate of inflation, moderating slightly from 3.6 percent last month.
Reinforcing the positive signal sent by durable goods earlier this month, new orders for manufactured goods rose 3.7 percent (nonannualized) in July, marking their fifth straight increase. Durable goods orders rose 6.0 percent, while nondurable orders increased 1.3 percent. New orders excluding defense rose 3.2 percent, and orders excluding transportation rose 2.4 percent. Shipments rebounded from last month’s 0.5 percent decline, climbing 2.6 percent in July, the largest increase for the series since March 2004. Inventories posted a slight gain of 0.2 percent.
Existing single-family home sales continued to decline in July, falling a more modest 0.4 percent during the course of the month compared with June, when sales fell 3.3 percent. Over the past 22 months, with the exception of relatively large back-to-back gains in January and February, existing single-family home sales have fallen steadily, resulting in an annualized growth rate of −11.8 percent over the period. Over the same period, the median sales price has fluctuated somewhat between around $230 thousand and $210 thousand but on average has remained relatively flat. Months of inventory increased to a recent peak of 9.2 months, more than double the 4.4 month average inventory level seen in 2005.
New single-family home sales rose 2.8 percent in July, as a healthy increase in the West boosted the national number. Despite July’s increase the 3-, 6- and 12-month growth rates in sales remain negative. New single-family home sales peaked 24 months ago, in July 2005, and have since fallen at an annualized rate of 20.9 percent. Over the first 12 months of this period, sales fell 30.2 percent, compared to a more modest, yet still substantial, 10.2 percent decline over the most recent 12-month period. Currently, sales are at a level last seen regularly during and just prior to the 2001 recession.
New orders for durable goods increased 5.9 percent (nonannualized) in July, the largest monthly increase since September 2006 and up 8.1 percent over July of last year. While new orders excluding defense rose 7.9 percent for the month, new orders excluding transportation only rose 1.3 percent. Orders for nondefense capital goods excluding aircraft rebounded from decreases over the past two months, rising 2.2 percent in July. Shipments also bounced back after a 1.1 percent decrease in June, increasing 3.8 percent in July, their largest increase since March 2004. Unfilled orders of durable goods, which have been trending upward on a backlog of aircraft orders, are now up 20.9 percent on a year-over-year basis.
Single-family housing starts fell 7.3 percent in July, their lowest level in over 10 years, while permits for single-family homes fell 1.6 percent, their lowest level in more than 12 years. Single-family starts peaked in January 2006 before proceeding to fall 32.4 percent over the rest of the year. Year-to-date in 2007 housing starts are off a slightly more modest 13.8 percent.
The Producer Price Index (PPI) rose 7.5 percent (annualized rate) in July, exceeding expectations, but was largely due to price jumps in energy products. Prices excluding food and energy (core PPI) for finished goods only rose 1.5 percent, compared with a 3.8 percent increase in June. Further back on the production line, core intermediate and core crude goods were stable as well, rising 2.9 percent and 0.4 percent respectively. Core intermediate goods had averaged increases of 6.9 percent over the previous four months.
Total retail sales increased slightly 3.6 percent (annualized rate) in July after last months 8.3 percent decrease, and stand 3.3 percent above July 2006. Autos fell 3.9 percent and were a slight drag on the overall number as retail sales ex autos rose 4.4 percent. Sales at department stores (excluding leased departments) rose 20.6 percent and, on a year-over-year basis, rose 1.2 percent after averaging -1.5 percent over the previous three months.
Import prices rose 19.6 percent (annualized rate) in July, led by surging prices for imported petroleum and petroleum products, which more than doubled (at an annualized rate) for the third time this year. Nonpetroleum import prices rose 2.3 percent in July, slightly less than their 12-month average (2.7 percent). Import prices of foods, feed, and beverages spiked 20.5 percent in July, the largest growth since August 2006.
Nonfarm business sector productivity rose 1.8 percent (at an annualized rate) in the second quarter of 2007, above the first quarter’s 0.7 percent, but slightly below expectations. Compensation per hour increased 3.9 percent, but when a 6.0 percent jump in consumer prices is factored in, real compensation fell 2.0 percent. Unit labor costs increased 2.1 percent in the second quarter, less than their 2006 average of 2.9 percent. Due a recent benchmark revision to GDP that downwardly revised data back to 2004, productivity (in almost every category) was revised down as well, slightly changing our picture of the past.
Personal income rose 5.5 percent (annualized rate) in June, following May’s similar increase of 5.4 percent. Wages and salaries rose 6.6 percent in June, reflecting broad-based increases across all categories. Consumption increased 1.4 percent, the smallest increase since September 2006, but is still up 5.2 percent over June of last year.
The Personal Consumption Expenditure Price Index (PCE) rose 1.7 percent (annualized rate) in June, backing off from a 5.8 percent jump in May, and was the smallest increase since November 2006. The PCE excluding food and energy prices inched up from May, rising from 1.6 to 1.7 percent. The 12-month growth rate in PCE excluding food and energy prices fell slightly from 2.0 percent to 1.9 percent, the first time the series has been under 2.0 percent since March 2004.
The Employment Cost Index (ECI) increased 3.5 percent (annualized rate) in the second quarter of 2007, on par with the average over the last four quarters. On a year-over-year basis, the ECI edged down to 3.4 percent from 3.5 percent in 2007:IQ. The rate of appreciation to wage and salary costs, which account for 70 percent of total civilian compensation costs, slowed to 3.1 percent from last quarter’s 28-quarter high of 4.3 percent. However, growth in benefits costs spiked to 5.1 percent (the largest since 2004:IIQ), compared to 0.4 percent in the first quarter.