Macroeconomic Overview: According to its first or "advance" estimate for the second quarter, the Bureau of Economic Analysis (BEA) indicated that the U.S. economy expanded at a 2.6% annual rate between April and June. In their advance estimates, the BEA emphasizes that figures are preliminary and subject to revision as additional data is collected. The latest estimate for GDP growth in the first quarter, based on a relatively complete set of data, indicates that economic activity expanded 1.2% between January and March. The acceleration in GDP growth in the second quarter was primarily a result of improved inventory investment, stronger consumer spending, and higher federal government spending.
Inventory investment is one of the more challenging components of GDP to derive and revisions can be large. Because of the fluctuations in GDP that can result from swings in estimates for inventory investment, it is common to look at real final sales, which is simply overall GDP less inventory investment. This measure of economic activity was slightly lower in the second quarter than it was in the first quarter, decreasing from 2.7% to 2.6%. Nonetheless, consumer spending, which accounts for about 70% of GDP, accelerated in the second quarter, improving from a rate of 1.9% in the first quarter to 2.8% in the second quarter.
The International Monetary Fund (IMF) issued a series of updates to forecasts in July. Projections for global growth were unchanged, with the world economy expected to expand 3.5% in 2017 and 3.6% in 2018 (was 3.2% in 2016). Figures for the U.S. were revised lower, with the forecast for 2017 GDP growth lowered 0.2 percentage points (from 2.3% to 2.1%) and the forecast for 2018 lowered 0.4 points (from 2.5% to 2.1%). U.S. figures were lowered because of slower than expected growth in the first half of 2017 and diminished expectations regarding fiscal stimulus. Forecasts for economic growth in several European nations were revised higher.
In their latest meeting, the Federal Reserve Open Market Committee decided not to raise interest rates. The statement that followed the meeting suggested that rates could be increased at meetings to be held later this year (September, October, and December). With news from the meeting, the U.S. dollar lost further ground, with dollar futures losing about 2% in trading since late July. The euro was among the currencies that marked the largest gains against the dollar.
Employment: The U.S. economy is estimated to have added 209,000 jobs in July. Revisions to earlier months' numbers indicated that job growth in previous months was slightly higher than previously determined (+2,000 in total, May figures revised down from +152,000 to +145,000, June figures revised up from +222,000 to +231,000).
The unemployment rate decreased marginally from 4.4% to 4.3%, reaching the lowest level since 2001. Initial claims for unemployment insurance, a proxy for layoffs, continue to hold to their lowest levels since the 1970s. Wages increased at a 2.5% rate year-over-year, which is in line with wage growth throughout most of 2017.
Consumer Confidence & Spending: After three consecutive months of decreases, the Conference Board's Index of Consumer Confidence rose 3.8 points to 121.1 in July. Even with recent declines, consumer optimism ranks among the highest on record. The strength of the labor market, low gasoline prices, and record stock market prices have all been cited as sources of support for consumer attitudes.
Although consumer spending was stronger in the second quarter, growth in expenditures have been tepid relative to the gains that have been made in consumer confidence. In June, the latest month with data available, overall consumer spending was essentially flat relative to figures for May (+0.04%). Year-over-year, overall spending was up 2.4%, which is the weakest rate of growth posted thus far into 2017.
Spending on apparel was 0.2% higher month-over-month and 2.7% higher year-over-year in June. This marked the fourth consecutive month of increased apparel spending, after two consecutive decreases were registered in the first two months of the year.
Consumer Prices & Import Data: Retail apparel prices decreased for the fourth consecutive month in June, dropping 0.3% relative to the value posted in May. Year-over-year, retail apparel prices were 1.7% lower in June. Seasonally-adjusted prices per square meter (SME) of imported cotton-dominant apparel edged slightly higher in June (+$0.01/SME). Over the past twelve months, average sourcing costs have been generally stable, holding to the lowest level prices recorded outside of the 2008/09 recession. Despite low sourcing costs, import volumes have been declining. In terms SME, cotton-dominant apparel imports were 2.3% lower in the first half of this year than they were one year ago.