The market digested a wide range of key data this week about the health of the US economy, and it was choppy but mostly points towards a slower pace of growth as we transition into the second half of 2022. First quarter GDP was revised down to -1.6% on slower personal consumption growth, although the negative print was largely the result of higher inventories, a surge in imports, and weak exports in the first part of the year.
A preliminary reading on orders for durable goods, which includes items intended to last at least three years, surprised to the upside with a 0.7% increase for May. This is in sharp contrast to recent negative data from the Dallas and Richmond Fed Manufacturing Indexes as consumer spending growth downshifts and producers grapple with headwinds such as inflation, supply chain disruptions, and strong US dollar. The Institute for Supply Management (ISM) manufacturing index slumped to 53 in June, the lowest level since June 2020, but remains in expansion territory.
Personal spending growth slowed to 0.2% in May and Consumer Confidence plummeted to 98.7 as of mid-June as consumers react to rising prices and become increasingly pessimistic as the Federal Reserve shifts its stance from accommodative to tightening to combat persistent elevated inflation. The US savings rate improved to 5.4% for May but remains below the long-run average. The Personal Consumption Expenditures (PCE) Deflator and PCE Core Deflator both came in slightly below expectations for May at 6.3% and 4.7% year-over-year, respectively, with Core PCE remaining well above the Fed’s 2% target.
Global central bankers met this week in Portugal for the annual ECB Forum and expressed concerns about inflation and committed to utilizing monetary policy tools to contain it. Bond yields declined this week as fears that hawkish central bank policies could trigger a recession.
Next Week:
Durable Goods, ISM Services Index, FOMC Meeting Minutes, Employment Report
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