Incomes/Spending Remain Strong, Jobless Claims Still Healthy, Housing and Manufacturing Slowing

- Personal Income for July rose .3% versus estimates of a .5% gain and a .5% increase in June.
- Personal Spending for July rose 1.0% versus estimates of a 1.0% gain and a 1.0% increase in June.
- PCE Core(MoM) for July rose .1% versus estimates of a .1% gain and an unchanged reading in June.
- Initial Jobless Claims for last week rose to 320K versus estimates of 315K and 317K the prior week
- Continuing Claims rose to 2607K versus estimates of 2575K and 2571K prior.
- Construction Spending for July was unchanged versus estimates of a .5% increase and a .6% decline in June.
- Pending Home Sales for July fell 1.0% versus estimates of an unchanged reading and a .6% fall in June.
- ISM Manufacturing for August fell to 53.6 versus estimates of 57.0 and a reading of 56.6 in July.
- ISM Prices Paid for August rose to 62.5 versus estimates of 52.0 and a reading of 48.5 in July.

BOTTOM LINE: US personal spending rose 1.0% for a second month in July, outstripping income gains. The spending increase matched June’s rise as the biggest since May 2004 as consumers jammed automobile showrooms, Bloomberg said. American incomes have now risen 6.3% over the past year, over 2 times the rate of inflation.

The Fed’s favorite inflation gauge, the PCE Core, rose .1%(MoM). So far there is very little evidence that soaring commodity prices are resulting in an inflation issue.

The number of Americans filing first-time claims for jobless benefits edged higher to 320,000 last week, as soaring home sales and strong consumer demand sustained job creation, Bloomberg reported. Jobless claims have now remained at or below 320,000 for seven straight weeks, the best stretch since before the stock market bubble burst in 2000. The four-week average of claims rose to 316,750. The insured employment rate which tracks unemployment rate held steady at 2.0%. I expect jobless claims to rise over the coming weeks due to the effects of Katrina.

US Construction Spending was unchanged in July from a month earlier as a rise in homebuilding was offset by a decline in the value of government-funded projects such as roadwork, Bloomberg said. Continued strength in homebuilding, rebuilding from Katrina and the passage of the highway bill will boost construction substantially over the remainder of the year.

US Manufacturing unexpectedly slowed in August as energy prices surged, Bloomberg said. The Prices Paid component of the index rose by the most in 15 years as commodity prices soared. The component of the index that measures order backlogs rose to 50.5 from 49, which is a positive. I expect manufacturing to continue to slow in the near-term, before rebounding several months from now.