After weaker data in
previous months, manufacturing surveys from the Dallas and Richmond Federal
Reserve Bank districts showed some signs of stabilization in August. Yet, it is
clear that activity has decelerated from stronger paces last year. In the Texas
release, sample comments continued to note worries about slower global growth,
trade policy uncertainties and the difficulties in finding sufficient talent.
The outlook for the next six months remained positive for both districts.
New durable goods orders increased
2.1 percent in July, but with very large increases for defense and nondefense
aircraft orders, which are often highly volatile from month to month. Excluding
transportation equipment, new durable goods orders fell 0.4 percent in July.
Over the past 12 months, new durable goods orders have risen a very soft 1.0
percent, with a decline of 0.1 percent with transportation equipment excluded.
The U.S. economy grew 2.0 percent at
the annual rate in the second quarter, off slightly from the previous estimate
of 2.1 percent growth and down from 3.1 percent growth in the first quarter. Consumer
and government spending buoyed growth for the quarter, but drags from business
spending and net exports counterbalanced this somewhat. Nonresidential fixed
investment fell 0.6 percent in the second quarter, the first decline since the
first quarter of 2016.
Moving forward, I estimate
1.9 percent growth at the annual rate in the third quarter, with 2.3 percent
growth for 2019. The outlook is for 1.8 percent growth in 2020, but with strong
cases for both upside and downside risks to that figure, at least for
According to the Conference
Board, consumer confidence slipped
marginally in August, with the headline index down from 135.8 to 135.1, but
mostly sustained the strong reading from July. Indeed, consumers felt more
upbeat about current economic conditions, with that measure rising to the best
reading since November 2000 on strong labor market and income assessments.
In contrast, the Index of Consumer Sentiment fell
from 98.4 in July to 89.8 in August, according to the University of Michigan
and Thomson Reuters. This was well below the preliminary estimate of 92.1 and
the weakest reading since October 2016, largely on a sharply reduced outlook
due to increased trade policy uncertainties and volatility in financial
Nonetheless, personal spending jumped
0.6 percent in July, the best reading since April. This suggests that the
consumer continues to spend at a solid pace, helping to prop up the economy.
Personal consumption expenditures have risen 4.1 percent year-over-year, a
decent pace even as it inched down from more robust year-over-year rates last
year. The saving rate also reflected the acceleration in spending, falling to
7.7 percent, the lowest rate since November.
The core PCE deflator rose
0.2 percent in July, with a gain of 1.6 percent year-over-year. That is down
from 2.1 percent year-over-year in July 2018. This measure has remained below
the Federal Reserve’s stated goal of 2 percent core inflation for seven
consecutive months, or in every month so far in 2019.
As such, the pricing data
should provide some comfort to the Federal Open Market Committee, as it allows
participants the luxury of being more “dovish” in setting monetary policy. The
Federal Open Market Committee is likely to reduce short-term interest rates at
the Sept. 17–18 meeting, following the 25-basis-point reduction made at the
July 30–31 meeting.