Nominal personal income rose 4.2 percent (annualized rate) in August, following July’s 6.5 percent increase. Wages and salaries increased slightly, rising 2.8 percent, but less than the 5.9 percent year-to-date average. Consumer spending outpaced growth over the last two months, increasing 7.0 percent during the month, but spending on nondurable goods fell 5.9 percent. Real (inflation adjusted) disposable personal income rose 5.4 percent in August and is now up 4.4 percent on a year-over-year basis, the highest it has been in a year. Over the long run, the personal saving rate has been steadily declining. In 1990, the average saving rate was 7.0 percent, in August 2007 it was 0.7 percent. The average since 1990 is 3.6 percent, but the saving rate hasn’t been above 2 percent since 2004.
The Personal Consumption Expenditure (PCE) price index fell 0.9 percent (annualized rate) in August, its first decrease since October 2006. The PCE excluding food and energy (core PCE) rose 1.1 percent, falling from a 1.6 percent increase in July. The 12-month growth rate in the core PCE price measure posted at a 41-month low of 1.8 percent.
The University of Michigan’s Index of Consumer Sentiment remained at 83.4 in September. The consumer expectations component rose 0.4 point to 74.1, while the current economic conditions worsened by 0.5 point to 97.9 and is now down 13.4 points from January. Both the short-term and longer-term inflation expectations remained unchanged in September from the previous month, a slightly elevated 4.0 percent for the year ahead and 3.4 percent over the next 5 to 10 years.
Total private construction spending was virtually unchanged in August after declining 1.1 percent in July. Weakness on the residential side continued, with private residential construction falling 1.5 percent, the eighteenth consecutive decline. Spending on private nonresidential construction bounced back after falling slightly in July and increased 2.3 percent in August. Since the beginning of 2005, monthly spending on private nonresidential construction has fallen only four times.
Weakness in the market for new homes continued, as new single-family home sales fell 8.3 percent in August, more than reversing July’s 3.8 percent increase. The decline brought sales down to a new low for this housing cycle, to a level last seen in 2000. Sales growth varied tremendously by region with the Northeast and Midwest posting substantial gains, while the South and West posted even larger (in nominal terms) declines. The 3-, 6- and 12-month growth rates in sales on the national level all remained significantly negative in August, but all were above recent lows, implying that the rate of decline in sales may be slowing. Inventories of new single-family homes increased from 7.6 months to 8.2 months, just below their recent peak.
Existing single-family home sales continued their descent in August, falling 3.8 percent over the course of the month to their lowest level since 2002. August’s decline was the sixth consecutive monthly decline and brings sales down an annualized 18.2 percent on the year. Over the past six months sales have fallen at an annualized pace of 33.1 percent; that is the steepest rate of decline over any six-month period since 1989. Inventories of existing single-family homes increased over the month from 9.2 months to 9.8 months, their highest level since 1989 and considerably above the average of 5.4 months seen over the past five years.
Second-quarter GDP was revised down by 0.2 percentage point, from 4.0 percent (annualized rate) to 3.8 percent, according to the final estimate released by the Bureau of Economic Analysis. A small upward revision to imports, from −3.2 percent to −2.7 percent, and a slight downward revision to nonresidential structures were the causes of the overall revision.
New orders for durable goods fell 4.9 percent (nonannualized) in August, almost wiping out a 6.1 percent increase in July. New orders excluding defense decreased 5.9 percent; excluding transportation, new orders dropped 1.8 percent. Orders for nondefense capital goods excluding aircraft declined 0.8 percent and have now fallen five out of the last eight months. Shipments followed up a 4.0 percent increase in July with a 1.6 percent decrease in August. Unfilled orders of durable goods continued to trend upward on a backlog of aircraft orders, rising 1.2 percent during the month, and are now up 21.9 percent on a year-over-year basis.
Single-family housing starts fell 7.1 percent in August after falling 7.3 percent in July. The consecutive months of steep declines brought the series down to its lowest level since 1993. In the 21 months since peaking, single-family housing starts have fallen at a 29.2 percent annualized pace. So far in 2007, housing starts are on pace to decline 29.0 percent. Adding to the negative outlook, permits for single-family homes, which are considered by some to be a leading indicator for future homebuilding, fell 8.1 percent in August. The decline in permits was the largest since 1995 and brought the number of permits issued to its lowest level since 1995 as well.
The Consumer Price Index (CPI) declined 1.7 percent (annualized rate) in August, due largely to a 32.3 percent drop in energy prices. Energy prices have now fallen for the past three months, after spiking 88.3 percent in May. The CPI excluding food and energy prices rose 1.8 percent during the month, down more than a percentage point from 2.9 percent in July, and has risen 2.1 percent over the past 12 months. Both the median and 16 percent trimmed-mean measures show inflation has come down from longer-term trends. The median CPI rose 2.3 percent in August, down from its 12-month growth of 2.7 percent. The 16 percent trimmed-mean fell from 2.3 percent over the past 12-months to a 1.3 percent increase in August.
The Producer Price Index (PPI) fell 15.3 percent (annualized rate) in August, but the fall was largely caused by a 56.1 percent drop in energy products. The PPI increased 7.5 percent in July. Prices excluding food and energy (core PPI) rose 2.3 percent in August, in line with the year-to-date average increase of 2.2 percent. Further back on the production line, core intermediate and core crude goods were less stable, falling 5.5 percent and jumping 17.4 percent, respectively.
The current account deficit declined $6.3 billion to 5.5 percent of GDP in the second quarter, down from 5.7 percent of GDP in the first quarter, to its lowest level relative to GDP since the third quarter of 2005.
Import prices fell 3.9 percent (annualized rate) in August, the first decrease since January, but still rose 1.9 percent on a year-over-year basis. The decrease was largely fueled by petroleum prices, which dropped 15.0 percent during the month. However, import prices of nonpetroleum products fell 1.1 percent as well.
Total retail sales posted a slight 3.4 percent (annualized rate) increase in August, after an upwardly revised 6.1 percent increase in July. Reversing July’s take away, autos jumped up 39.5 percent, buoying the overall number as retail sales excluding autos fell 4.2 percent during the month. Sales at building materials, garden equipment, and supply stores more than reversed a 10.5 percent gain in July, falling 11.2 percent in August and are now slightly below levels seen last August.
Industrial production increased 2.7 percent (annualized rate) in August, slightly weaker than the 6.4 percent and 6.9 percent gains seen in July and June, respectively. Both manufacturing and mining production were noticeably weaker. Manufacturing fell 3.1 percent, accompanied by a 4.1 percent drop in durable goods production. Mining slipped 7.4 percent in August. Electric and gas utility production, exhibiting typical volatility, spiked up 86.4 percent after decreasing 18.1 percent last month.
The nominal trade deficit fell $183 million to $59.2 billion in July, as exports increased a relatively large 2.7 percent and imports increased 1.8 percent. Over the past 10 months the trade deficit has held fairly steady at just over $59 billion, down considerably from the peak deficit of $67.6 billion seen in August 2006.
Nonfarm payroll employment fell by 4,000 in August, surprising those who had forecast a modest gain, and registering the series’s first decrease in four years. Goods-producing industries shed 64,000 jobs, as construction lost 22,000 and manufacturing lost 46,000. The housing slump played a part, as 23,000 jobs tied to residential construction were lost. Services gained 60,000 jobs partly on strength in educational services (+13,800). There were striking downward revisions to June and July’s employment estimates (−81,000 jobs combined) centered on local government educational services. The series was revised down 58,600 jobs in July and down 23,600 jobs in June. The August Bureau of Labor Statistics release hinted at the issue with this statement: “Employment in local government education fell by 32,000 in August, as seasonal hiring was less than usual.” It seems the seasonal trend over the past few months was overestimated.
In the latest figures released by the Bureau of Labor Statistics, nonfarm business sector productivity was revised up to 2.6 percent (annualized rate) from 1.8 percent for the second quarter of 2007. Compensation per hour was adjusted slightly, from 3.9 percent to 4.1 percent, but after accounting for consumer prices, it still fell 1.8 percent. Due to the upward revision in second-quarter productivity, unit labor costs were adjusted down from 2.1 percent to 1.4 percent, decelerating from 5.2 percent in the first quarter of 2007.
Total private construction spending fell 0.7 percent in July, after falling 0.2 percent in June. As has been the case in each of the previous 16 months, private residential construction spending declined in July as well, dropping 1.4 percent. Private nonresidential construction partially offset the decline on the residential side, increasing 0.4 percent. Since private residential construction began to fall in March 2006, the value of private nonresidential construction has increased 24.1 percent, while the residential side has declined 23.1 percent. Due to the relative magnitudes of the two markets, their combined impact translates into a 9.6 percent decline in total private construction spending over the period.
The ISM Manufacturing Index continued to fall from June’s recent high of 56, slipping almost one point, to 52.9 in August. Both the production and employment indexes gained ground during the month, but the new orders index dropped 2.2 points to 55.3. The prices paid index fell by two points, to 63, in August, down 10 points from the high of 73 reached in April.