There are a few important reports on the U.S. economy worth mentioning this morning. First, data from the Department of Commerce showed that personal income for Americans rose by 0.4 percent in May. That is in line with expectations and the 11th monthly gain in a row. During this same period consumer spending, which accounts for more than two-thirds of the economy (GDP), lifted by 0.2 percent. That is half the anticipated gain and looks even worse after being adjusted for the rising cost of living. Indeed, the Federal Reserve’s preferred measure of inflation rose 0.2 percent in May and is up 2.0 percent over the past twelve months. That is the fastest pace of annual growth recorded since April 2012 and finally in line with officials’ 2.0 percent “target.” Altogether this report will help the Fed justify additional interest rate hikes in 2018, and current market pricing implies that the next quarter-point increase will occur at the September FOMC meeting.
Elsewhere, the University of Michigan’s consumer sentiment index ended June at 98.2, down from the mid-month reading but still well above pre-election levels. Under the hood, surveyed Americans’ views of current economic conditions improved markedly this month, while outlooks on the future deteriorated. The latter is likely a result of growing concerns about the looming trade war. Specifically, the potential impact of tariffs on the domestic economy was spontaneously cited by one in four surveyed consumers, according to the UoM report, with most respondents saying that they expect the economic impact to be negative. Surveys of Consumers chief economist Richard Curtin added that “Consumers' judgments about the impact of higher tariffs will not crystallize until they gain more experience with actual changes in product prices and domestic employment. While tariffs may have a direct impact on only a very small portion of overall GDP, the negative impact could quickly generalize and produce a widespread decline in consumer confidence.”
Sources: Econoday, U.S. Census Bureau, UoM, The Conference BoardPost author: Charles Couch