Friday, September 28, 2012

More Disappointing Economic Data ...

It appears that this week can be considered as a week of bad economic data.  Today, the personal income & spending report was disappointing, and consumer sentiment and the Chicago PMI came in below expectations.
Personal Income & Outlays (August)
August personal income & spending report showed less than expected growth in income, moderate growth in spending, and growth in overall prices outpacing growth in income.  We view such report as disappointing as the higher spending and higher inflation gauge (PCE price index) were mainly driven by higher gasoline prices and not necessarily by an increase in demand.
  • Personal income increased by only 0.1% from July.  In addition, the July monthly change figure was actually revised down from 0.3% to 0.1%.
  • Consumer spending was in-line with expectations; up 0.5% from July.
  • Y/Y growths in personal income and spending were revised down by 20bps and 10bps, respectively.
  • Headline PCE price index increased by 0.4% from July, lower than the 0.5% consensus.  However, it was higher than growth seen in income.  Core PCE price index m/m change of 0.1% was in-line with expectations.  We note that the Y/Y changes in both the headline and core inflation measures were less than the Y/Y changes in personal income and spending.
Chicago PMI (September)
The Chicago PMI not only came in below expectations, but also showed contraction during September.  This will likely lower overall estimates for the ISM report which will be released on Monday.  We still expect a slight improvement (51.0 compared with 49.6 in the prior month) in the national ISM report. 
  • The 49.7 reading was significantly below the 53.0 consensus.
  • Most sub-indexes, including new orders, order backlog, inventories, employment and capital equipment, declined from the prior month.  New orders were very disappointing as they declined significantly to 47.4 in September from 54.8 in August.
  • According to the report, the employment sub-index came in at a 2.5-year low, while new orders and order backlogs were at their lowest since mid-2009. 
  • Purchases of capital equipment came in at a 17-month low.
Consumer Sentiment (September)
University of Michigan's consumer survey results also came in below expectations; 78.3 versus 79.0.  However, the results were better than the prior month's and significantly above last year's.  Respondents were less enthusiastic about current conditions, but expect improvement going forward driven by optimism about the economy and jobs during next year.

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