Personal Incomes Surge 7.1%, Spending Healthy, Inflation Decelerates, Jobless Claims Still Low, Manufacturing Slows Modestly

- Personal Income for July rose .5% versus estimates of a .5% gain and a .6% increase in June.
- Personal Spending for July rose .8% versus estimates of a .8% gain and a .4% increase in June.
- The PCE Core for July rose .1% versus estimates of a .2% increase and a .2% gain in June.
- Initial Jobless Claims for last week were 316K versus estimates of 315K and 318K the prior week.
- Continuing Claims rose to 2486K versus estimates of 2478K and 2483K prior.
- The Chicago Purchasing Manager for August fell to 57.1 versus estimates of 57.0 and a reading of 57.9 in July.
- Factory Orders for July fell .6% versus estimates of a .9% fall and an upwardly revised 1.5% gain in June.

BOTTOM LINE: US consumer spending rose the most since January and a measure of inflation increased less than expected, suggesting a prolonged economic expansion that will let the Fed keep interest rates steady through year-end, Bloomberg said. The report showed Americans’ incomes rose 7.1%, more than twice most inflation measures. Disposable income, the money consumers have after taxes, rose a healthy 6% from year-ago levels. Spending on long-lasting items such as autos and furniture surged 1.6%, the most since January. The PCE Core, the Fed’s favorite inflation gauge, rose a smaller-than-expected .1% in July. I expect income and spending growth to stay around average long-term rates over the intermediate-term. I continue to believe inflation concerns have peaked for this cycle.

The number of US workers filing first-time applications for state jobless benefits fell last week, Bloomberg reported. The four-week moving-average rose to 317,500 from 316,500 the prior week. The unemployment rate among those able to receive benefits, which tracks the US unemployment rate, held steady at 1.9%. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Manufacturing growth in the Chicago area slowed this month as automakers curbed production and some businesses were wary of investing in new equipment and machinery, Bloomberg said. The prices paid index fell to 75.2 from 86.8 the prior month. The new orders component of the index fell to 59.6 from 60.0 the prior month. The employment component of the index rose to 55.1 from 50.5 the prior month. I continue to believe manufacturing will remain around average levels as companies rebuild depleted inventories.

Slower demand for aircraft and automobiles pushed down US factory orders in July for the first time in three months, Bloomberg said. Orders gained 1.1%, excluding volatile transportation equipment orders, spurred by corporate spending on computers and machinery. Bookings for autos fell 7% as carmakers have responded to declining demand for gas-guzzling SUVs. Orders for capital goods excluding aircraft and defense, a gauge of future business spending, rose a healthy 1.6% versus a .9% gain in June. The inventory-to-shipments ratio rose to 1.17 months versus an all-time low of 1.15 months in May. Factory order should remain relatively healthy over the intermediate-term.