Personal Spending/Incomes Exceed Estimates, PCE Core Rises Slightly More, Factory Orders Jump

- Personal Income for June rose .1% versus estimates of a -.2% decline and a 1.8% increase in May.

- Personal Spending for June rose .6% versus estimates of a .4% gain and a .8% increase in May.

- The PCE Core for June rose .3% versus estimates of a .2% gain and an upwardly revised .2% increase in May.

- Factory Orders for June rose 1.7% versus estimates of a .7% gain and an upwardly revised .9% increase in May.

BOTTOM LINE: Personal Incomes and Spending exceeded economists’ estimates in June, while the PCE Core increased slightly more, Bloomberg reported. About $28 billion in tax rebates went out in June, versus $50 billion in late April and May. The PCE Core, the Fed’s preferred inflation gauge, rose 2.3% year-over-year in June, which is still below the 20-year average of a 2.4% rise and well below the 3.6% year-over-year increase going back to January 1960. Despite the diminishing positive effects from the tax rebates and numerous headwinds, weekly retail sales remain at multi-month highs and now energy and food prices are falling significantly. The S&P Goldman Agriculture Commodity Spot Index is down another -4.86% today and is breaking convincingly below its 200-day moving average for the first time since June 2004. This index is now in bear market territory, falling 22% from its closing high set on March 12^th of this year. As well, oil is dropping 3.3%, despite Iran/hurricane worries, and has plunged 18% in three weeks. The broad CRB commodity index is down 15% in a month. This is a large positive for the consumer psyche and spending that investors seem to be ignoring right now.

Factory Orders in the US rose more than forecast in June, Bloomberg reported. The 1.7% rise in bookings was the largest this year. Orders excluding volatile transportation equipment rose 2.3%, the most since April. Manufacturers had 1.22 months worth of goods on hand at the current sales pace, down from 1.23 months in May. Bookings for capital goods excluding defense and aircraft, a gauge of future business demand, rose a healthy 1.2% in June. Shipments of such goods, which is used to compute GDP, rose .7%. I expect factory orders to rise again in July on inventory rebuilding.