Friday, September 30, 2005

Incomes/Spending Decline, Confidence Depressed by Hurricanes, Chicago Manufacturing Soars

- Personal Income for August is estimated to fall .1% versus estimates of a .1% decline and a .3% increase in July.
- Personal Spending for August is estimated to fall .5% versus estimates of a .2% fall and an upwardly revised 1.2% increase in July.
- PCE Core(MoM) for August rose .2% versus estimates of a .1% increase and a .1% gain in July.
- Final Univ. of Mich. Consumer Confidence for September fell to 76.9 versus estimates of 78.0 and a reading of 76.9 in August.
- Chicago Purchasing Manager for September rose to 60.5 versus estimates of 52.0 and a reading of 49.2 in August.
BOTTOM LINE: US personal spending fell in August by the most in three years and incomes unexpectedly dropped, Bloomberg reported. Uninsured property losses from hurricane Katrina reduced personal income by about $100 billion. The savings rate gained to -.7% from -1.1% in July. Incomes rose 5.6% in August from the same month last year, paced by a 6.6% gain in wages and salaries, Bloomberg reported. The year-over-year gain in incomes is almost twice the rate of inflation. Spending and incomes will likely take a larger hit in September as more of the effects of the hurricanes are felt.

US consumer confidence plunged by the most in 25 years after Hurricanes Katrina and Rita ravaged the Gulf Coast and pushed gasoline prices to record highs, Bloomberg reported. The expectations index, based on optimism about the next one to five years, dropped to 63.3 from 76.9. I expect consumer sentiment to bounce back sharply in October.

Chicago-area manufacturing expanded more than expected in September, signaling that firms are able to cope with higher energy prices after Hurricane Katrina and Rita, Bloomberg said. The prices paid component of the index rose to 76.3 from 62.9. The new orders component soared to 63.4 from 46.5 the month before. The employment component of the index fell to 48.4 from 51.7. This was a very impressive report given the headwinds from the hurricanes. I expect manufacturing to continue to contribute to economic growth through year-end.

No comments: