Friday, August 29, 2014

Consumer Sentiment Improved in August

According to the University of Michigan Consumer Sentiment index, consumer sentiment rose in August to 82.5, fully erasing the decline from the previous month.

Current expectations jumped to 99.8, a seven year high. Future expectations declined slightly to 71.3, the lowest reading since March. The gap between current and future expectations remained. Consumers are less optimistic about the future in comparison to the present.

The report indicated that inflationary expectations slightly changed from the month prior, calling for 3.2% inflation over the next year and 2.9% over the next 5 years.

Personal Consumption Dropped in July

Personal consumption declined 0.1% in July, the first monthly decline since January, which was due to the cold weather. Personal income grew a modest 0.2%, the slowest increase this year.

Wage growth grew 0.2% and disposable income improved a slight 0.1%. Real personal income dropped 0.2% in July, the only decline all year. Dividend income, usually the driver of income growth, slowed considerably. Real personal income grew a modest 0.1%.

The savings rate increased to 5.7 months, as both consumption declined and income increased.

Inflation remained tame; the PCE deflator rose 0.1% in July and was 1.6% above year-ago levels. This was below the 2.0% target of the Federal Reserve.

The Federal Reserve noted this past week that, “the likelihood of inflation running persistently below two percent has diminished somewhat.” However, Janet Yellen said last week that, “If progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated . . . then than the Committee currently expects and could be more rapid thereafter.” However, she also noted that rates could raise later than anticipated if the data disappoints.

Read the BEA release.

Thursday, August 28, 2014

ABA Statement on FDIC’s Second Quarter Bank Earnings Report

ABA's Chief Economist James Chessen said, “We continue to see a strong, steady improvement for America’s banking industry, headlined by a sharp increase in business loans and a dramatic improvement in the quality of bank portfolios. Banks are well positioned to continue their role as critical economic drivers, supporting job growth and business expansion. Banks have ample capacity and are ready and willing to meet increased loan demand as business and consumer confidence improves.”

Read the full release.

Second Quarter GPD Revised Up to 4.2%

Real GDP growth for the second quarter was revised up to 4.2% in the BEA’s second estimate. The upward revision was driven primarily by higher fixed investment growth than initially forecast, and secondarily by a lower drag from net exports. Growth in the second quarter jumped following the decline in the first quarter. Despite the growth, second quarter GDP was held back by slower contributions from inventory accumulation and lower government spending.

Consumption remained the strongest component of growth, contributing 1.7% to second quarter growth, the same in the previous estimate. Fixed investment jumped from its previous reading of 0.9% to 1.3%. Inventories contributed 1.4% in the second quarter, following a 1.2% decline in the first quarter. Inventories tend to be highly volatile. The government went from dragging growth by 0.2% in the first quarter to contributing 0.3% growth in the second.

The healthy growth of the economy in the second quarter is due to several factors. Firstly, the harsh winter is over and the second quarter rebounded as a result. Moreover, the government’s austerity measures are no longer negatively weighing on GDP growth.

Read the BEA release.

Tuesday, August 26, 2014

Annual Home Price Appreciation Slows in June

According to the Case-Shiller 20-city index, home price appreciation slowed to 1.0% in June. Notably, year-over-year growth has steadily declined from 13.1% in January to 8.1% in June, a trend that will likely continue. The 10-city index followed a similar pattern, as year-over-year growth slowed from 13.4% in January to 8.1% in June.

All 10 metropolitan areas saw home prices improve from the previous month. Moreover, every metropolitan area continues to see prices above year-ago levels. San Francisco had the slowest growth at 0.3%, but it came off the strongest growth the previous month. New York accelerated the fastest in June, improving 1.6%. Notably, the range of growth has narrowed, indicative of a normalizing market. Las Vegas continues to see the largest year-over-year growth, at 15.2%.

Read the S&P report.

Monday, August 25, 2014

New Home Decline for Second Consecutive Month in July

New home sales declined in July to an annualized pace of 412,000 units. June’s headline index was revised up by 16,000. July’s pace was 2.4% below June’s. July’s report was 12.3% above year ago levels.

Three of the four regions annual pace declined. Only the South improved 8.1% in July. The Northeast saw two consecutive months of double digit declines. The West and Midwest declined 15.2% and 8.8% respectively.

Due to depressed sales in July, the supply of homes increased to 6.0 months, the highest value since October 2011.

The median price of a new home fell 4.8% to $269,900. However, the median price is now 3% above year ago levels.

Read the Census report.

Friday, August 22, 2014

Yellen: Increase in the Federal Funds Rate Could Come Sooner

In a speech today, Federal Reserve Chairwoman Janet Yellen said that the federal funds rate rise could occur sooner than the Federal Reserve had originally planned. She stated that, “If progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated . . . then than the Committee currently expects and could be more rapid thereafter.” However, she also noted that rates could raise later than anticipated if the data disappoints.

The nuanced speech walked a fine line between airing a more dovish or hawkish stance on monetary policy. She concluded that, “I believe that our assessments of the degree of slack must be based on a wide range of variables and will require difficult judgments about the cyclical and structural influences in the labor market.”

The comments mark a notable shift from Yellen’s position earlier this year that highlighted the underemployment that still exists in the U.S. economy. “With the economy getting closer to our objectives, the [Federal Open Market Committee’s] emphasis is naturally shifting to questions about the degree of remaining slack, how quickly that slack is likely to be taken up, and thereby to the question of under what conditions we should begin dialing back our extraordinary accommodation,” she said.

Yellen’s speech appeared to shift her focus from propping up a recovering economy with an underutilized labor force to when interest rates will rise.

Read the full speech.