By yourNEWS Media Newsroom
A broad set of U.S. economic reports released Wednesday delivered stronger-than-expected readings on hiring, consumer spending and economic growth while showing inflation running below economists’ forecasts, presenting a markedly different picture from recent surveys showing Americans increasingly pessimistic about the economy.
The personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, increased 0.3% in August and was 3.4% higher than a year earlier, according to the Commerce Department’s Bureau of Economic Analysis.
The annual increase came in below economists’ forecast of 3.7%. The monthly increase was also below the 0.4% estimate cited by forecasters.
Underlying inflation was cooler than anticipated as well.
Core PCE, which excludes the more volatile food and energy categories, increased 0.2% from July and 3% from a year earlier. Economists had expected gains of 0.3% for the month and 3.3% over 12 months.
Both headline and core inflation therefore remained above the Federal Reserve’s longer-run 2% inflation objective, but the August readings showed less price pressure than economists had anticipated.
The inflation figures were accompanied by substantial revisions to previous data following the BEA’s annual update of the national economic accounts.
July’s headline PCE increase was revised down to 0.1% from 0.2%. The previously reported annual inflation rate of 3.7% for July was revised to 3.4%.
The annual update incorporated revised information dating back to January 2021 and methodological changes affecting several components of the price indexes, including computer software and accessories, portfolio management and investment advice, and legal services.
Energy was the most significant source of upward price pressure during August.
Energy goods and services increased 2.3% for the month, including a 4.4% increase in gasoline prices. Transportation services prices climbed 1.4%.
Prices for goods overall rose 0.3% from July, while services prices also increased 0.3%.
The inflation numbers arrived alongside evidence that Americans dramatically accelerated their spending despite surveys showing deteriorating consumer attitudes.
Personal consumption expenditures jumped $190.8 billion, or 0.9%, in August after a revised 0.1% increase in July, according to the BEA.
After adjusting for inflation, real consumer spending increased 0.6%, compared with a revised 0.1% increase during the previous month.
The $190.8 billion increase was split across both major categories of household purchases. Spending on goods rose $114.1 billion, while spending on services increased $76.7 billion.
Among the largest contributors were other nondurable goods, gasoline and other energy products, motor vehicles and parts, food services and accommodations.
Spending on recreational goods also increased, while recreation services declined by $10.3 billion.
Consumer spending accounts for roughly two-thirds of U.S. economic activity, making the August acceleration an important indicator of demand heading into the final months of the year.
The surge was particularly notable because household income increased considerably more slowly.
Personal income rose $66.6 billion, or 0.2%, during August. Disposable personal income — income remaining after personal taxes — increased $68.6 billion, or 0.3%.
After adjusting for inflation, real disposable personal income was unchanged.
With spending rising considerably faster than income, households saved a smaller proportion of their available earnings.
Personal saving totaled $990.2 billion in August, and the personal saving rate fell to 4.1% from a revised 4.6% in July.
The combination indicates that consumers financed part of August’s spending acceleration by directing a greater share of available income toward purchases rather than savings.
Wednesday’s spending figures stand in sharp contrast with measures of how Americans say they feel about their financial circumstances and the broader economy.
The Conference Board’s Consumer Confidence Index fell 6.7 points in September to 81.9 from 88.6 in August, marking its third consecutive monthly decline and its weakest reading since 2014.
Consumers’ assessment of current business and labor-market conditions also deteriorated, while expectations for the next six months weakened further.
The Conference Board’s Present Situation Index fell 7.9 points to 109.3, while its Expectations Index declined 5.9 points to 63.6.
The University of Michigan produced a similarly weak reading.
Its final September consumer sentiment index fell to 48.1 from 51.7 in August and stood 15% below its January level.
The difference between weak sentiment and strong actual spending illustrates an increasingly important divide in the economy: consumers are reporting substantial concern about prices, employment prospects and household finances while continuing to spend.
Higher gasoline costs, persistent inflation and uncertainty surrounding jobs and business conditions have weighed on surveys, but those concerns had not yet translated into a broad pullback in August purchases.
The labor market also produced a stronger reading Wednesday.
Private employers added 90,000 jobs in September, according to the ADP National Employment Report, exceeding economists’ expectations of approximately 70,000.
The increase represented a substantial acceleration from August, when private payroll growth was revised down to 36,000 from the previously reported 38,000.
“It’s a strong report. After a three-month slowdown, job creation rebounded and pay growth remained solid,” said Dr. Nela Richardson, chief economist at ADP.
Hiring was spread across both goods-producing and service industries, although gains were uneven.
Goods-producing businesses added 31,000 positions.
Manufacturers increased payrolls by 17,000, while construction companies added 15,000 workers. Natural resources and mining employment declined by 1,000.
Service-producing employers added a net 59,000 jobs.
Education and health services led the increase with 55,000 new positions, followed by leisure and hospitality with 22,000.
Other services added 6,000 jobs and information companies added 3,000.
Those gains were partially offset by losses elsewhere.
Financial activities shed 16,000 positions, while professional and business services lost 11,000. Employment in trade, transportation and utilities was unchanged.
Hiring also occurred across businesses of different sizes.
Companies with fewer than 50 employees added 23,000 workers, including 18,000 at businesses employing fewer than 20 people and another 5,000 among firms with 20 to 49 workers.
Medium-sized employers with 50 to 499 workers added 54,000 jobs.
Companies employing 500 or more workers added 14,000.
Regional results were more uneven.
Employers in the Northeast added 56,000 positions, accounting for the largest regional gain. The Midwest added 5,000, the South added 11,000 and the West added 17,000.
ADP’s pay data showed wage growth continuing even as hiring had slowed during the preceding several months.
Base pay for employees remaining in their jobs increased 3% from a year earlier, while workers changing jobs experienced 4.8% growth.
Across all workers measured by ADP, median base pay increased 3.2% year over year and gross pay rose 4.7%.
Construction posted 4% base-pay growth, while manufacturing and financial activities each recorded 3.5% increases.
ADP’s figures are derived from anonymized payroll information covering more than 26 million private-sector workers. The report provides an independent measure of private hiring and does not necessarily track the Labor Department’s monthly employment report, which uses a different methodology and covers a broader portion of the labor market.
Wednesday also brought a substantial revision to the government’s assessment of economic growth during the spring.
The BEA’s third estimate of second-quarter gross domestic product showed the economy expanding at a 2.2% annualized rate from April through June.
That was a significant increase from the previous 1.5% estimate.
The upward revision primarily reflected stronger investment, consumer spending and government expenditures than previously calculated.
Consumer spending, investment and exports contributed to second-quarter growth, while imports increased and therefore subtracted from the GDP calculation.
The revisions also strengthened one measure economists use to assess underlying domestic demand.
Real final sales to private domestic purchasers — which combines consumer spending with gross private fixed investment and excludes some of the more volatile components of GDP — increased at a 4.6% annual rate during the second quarter.
The previous estimate had been 4.2%.
The measure is often watched because it concentrates on spending by U.S. households and private businesses and can provide a clearer indication of domestic economic momentum than headline GDP alone.
Real gross domestic income, which measures economic activity from the income side rather than through expenditures, increased 2.6% during the second quarter, revised upward from 2.2%.
The average of real GDP and real gross domestic income increased 2.4%.
Corporate profits from current production increased by $384 billion during the quarter.
The annual revisions also changed the picture for the beginning of the year.
First-quarter GDP growth is now estimated at 2.5%, up from the previously published 2.1%.
Second-quarter growth was revised higher largely because newly available data showed greater investment, consumer spending and federal expenditures.
Investment revisions included stronger inventory accumulation and fixed investment, with commercial and health care structures — particularly data centers — contributing to the change.
Consumer spending was revised upward for both goods and services, while updated federal defense expenditures contributed to the revision in government spending.
Taken together, Wednesday’s reports portray an economy in which several measures of underlying activity remained firm despite persistent inflation and weak household confidence.
Inflation remained above the Federal Reserve’s 2% objective, but both headline and core PCE readings were below economists’ expectations.
Consumer spending accelerated sharply, even after adjustment for inflation.
Private-sector hiring rebounded after three months of slowing growth.
And revised national accounts showed the economy expanding faster during the second quarter than previously believed.
At the same time, the data showed areas of continuing pressure.
Real disposable household income failed to increase in August, consumers saved a smaller share of their earnings, gasoline prices were a major contributor to monthly inflation, and employment declined in financial activities and professional and business services.
Consumer surveys also continue to show widespread concern about prices and weakening expectations for jobs and economic conditions.
The latest figures therefore present a mixed but substantially stronger picture of current economic activity than sentiment surveys alone would suggest: Americans were spending more, private employers were adding workers at a faster pace, second-quarter growth was revised sharply upward and the Federal Reserve’s preferred inflation measure came in below expectations.
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