The benchmark revisions were substantial and the data now paints a very different picture:

Highlights

Easing inflation pressure along with healthy consumer vital signs is the message from the personal income & outlays report for June. Both price indexes, the overall and the closely watched core rate which excludes food and energy, posted only marginal 0.1 percent gains in June with year-on-year rates favorable, at 2.2 percent overall and at 1.9 percent for the core, both unchanged from downwardly revised results in May. The movement in inflation is coming back toward the Fed’s 2 percent target line, not away from it.

Personal income rose a useful 0.4 percent with the wages & salaries component also at 0.4 percent. The savings rate was shifted sharply higher in last week’s benchmark GDP revisions in what is a very fundamental sign of health. The savings rate held unchanged in June at 6.8 percent.

The consumer didn’t dip into savings to keep up spending which was a solid 0.4 percent with May revised sharply upwards, from an initial 0.2 percent gain to 0.5 percent. Spending on services rose 0.6 percent in June to offset what is a small disappointment in today’s report which is no change in spending on durables.

The inflation readings in today’s report are complemented by a little less pressure in the employment cost index which was also released this morning. Together, they ease the pressure on the Federal Reserve and may help to keep down any hawkish edge to Wednesday’s FOMC statement.

The personal savings rate has been substantially revised to now show that the consumer has not been dipping into savings as previously indicated, removing that source of stress:

Nor is consumption growth decelerating as it was before the revisions:

And the downward bend in the personal consumption curve has been revised away as well:

Serious upward revisions for 2017!

June 2018 Pending Home Sales Seasonally Adjusted Index Remains In Contraction Year-over-Year

The National Association of Realtors (NAR) seasonally adjusted pending home sales index improved – yet the year-over-year contraction worsened. Our analysis shows continued worsening of growth.

So the savings rate puzzle, where consumption was exceeding income, has now been reconciled with large upward revisions in personal income. And looks like the credit expansion that supplied the income and drove the spending was from non-residents. The next monthly consumption and income releases will bring it all up to date:

Highlights

Leading a report that speaks to the risk of overheating, consumer spending drove GDP significantly higher in the second quarter, to a 4.1 percent annualized rate which, however, just misses Econoday’s consensus for 4.2 percent. Consumer spending rose at a very strong 4.0 percent rate in the quarter to contribute 2.7 points of the total rate with spending on services contributing 1.5 points. Spending on goods, split roughly evenly between durables and nondurables, contributed 0.6 points.

Net exports were the next biggest contributor, adding 1.1 points and reflecting strong improvement in exports that offset a slight increase in imports. Nonresidential fixed investment contributed 1.0 point to the quarter led by structures and intellectual property with equipment only slightly positive. Government purchases were also a positive contributor at 0.4 points.

Inventories are another major story in this report, falling $27.9 billion for a 1.0 point subtraction from GDP. When excluding inventories (final sales), GDP came in at 5.1 percent. And the pull lower from inventories is actually a positive for the economy, as inventories are too low and need to be rebuilt which should be a positive for third-quarter GDP. Residential investment proved only marginally negative in the second quarter.

To top this very strong report off are price pressures as the GDP price index came in at a very hot 3.0 percent, vs 2.0 percent in the first quarter and exceeding Econoday’s consensus range by 5 tenths. And the core, which excludes food and also energy prices which have been high, shows similar pressure, at 2.7 percent vs the first quarter’s 2.4 percent.

Overheating would appear to be a danger for the economy right now, consistent with the array of regional and private economic data where delivery delays, input costs and even price pass through are at or near record highs. Today’s report includes benchmark revisions including a 2 tenths upgrade to first-quarter GDP which now stands 2.2 percent. Also of note, the savings rate for 2017 is revised much higher to 6.7 percent from 3.4 percent.

Beneath the Surface, a Solid Economy With Room to Run

(WSJ) Exclude the volatile categories of net exports, inventories and government and the Q2 GDP result is 4.3% growth. Over the past year, it’s up 3.2%. Even without the tax cut the consumer would be in great shape. Wage growth remains subdued, but so many people are finding jobs that incomes are rising briskly. Friday’sreport disclosed that wages and self-employed income were much higher in recent years than previously thought. The saving rate instead of sliding to around 3% stands at 6.8%, in line with its average since 2012. The expansion now looks to be in its late middle age, not old age.

This is the quarterly data, just released, that shows a 4% gain for the quarter:

This is from the monthly data- paints a similar but somewhat picture:

This monthly report came out before the revisions:

Today’s quarterly numbers were from the new revised data:

And Fed profits paid to Treasury are no longer in the corporate profit series, slowing reported profit growth:

Corporate debt growth continues to decelerate:

But credit expansion for the rest of world has been accelerating since the presidential election. I don’t have a narrative for that, but seems large enough to explain where the income and spending originated:

Someone else now reads it the way I do- growth has been decelerating since the end of 2014 when oil capex collapsed:

Indications Are The Economy Will Slow With Or Without A Trade War

According to Lakshman Achuthan, Co-Founder & Chief Operations Officer of ECRI

Contrary to the notion of a “strengthening” economy, consumer spending growth has fallen to a 4 ¼-year low, as personal income growth continues to undershoot spending growth.

The consumer — which makes up about 70% of the economy — is getting hit with a six-year highs in inflation, so real wages are actually lower than a year ago.

The tax cuts helped the economy though they were relatively small and largely low multiple, but tariffs are tax increases and work to reduce real consumption if income doesn’t also adjust. Also, there could have been some front running ahead of the dates the tariffs go into effect. This adds volatility to the data.

Highlights

Helping to give a 1.0 percent boost to durable goods orders, aircraft orders did in fact rise sharply in June but still not nearly as much as expected given Econoday’s consensus for a 3.2 percent surge. Civilian aircraft orders rose 15.7 percent in the month but follow sharp declines of 21.0 percent and 39.4 percent in the prior two months. Excluding transportation, durable goods orders managed a moderate 0.4 percent rise to just miss expectations for 0.5 percent.

Strength in the report is centered in core capital goods (nondefense ex-aircraft) where orders rose 0.6 percent to just exceed Econoday’s consensus. Shipments for this reading, which are inputs into GDP, rose a sharp 1.0 percent which should raise estimates for second-quarter nonresidential investment.

Orders for primary metals fell 0.4 percent following May’s 0.1 percent dip, with fabrications, which are indirectly affected by tariffs, up only 0.1 percent in June after a 1.2 percent May decline. These two components make up more than 20 percent of total durable orders. In contrast to the soft new order data, inventories and unfilled orders for both primary metals and fabrications are building sharply.

Total unfilled orders, which have been building in recent months, rose a useful 0.4 percent in June which is another positive for the factory employment outlook. Total shipments surged 1.7 percent while inventories, which were already lean, slipped 0.1 percent. This mismatch drives the inventory-to-shipments ratio down sharply, to 1.60 vs 1.63 in both May and April.

Though aircraft is soft, this is otherwise a very positive report showing solid strength for capital goods. Manufacturing remains one of this year’s top performing sectors.

This is not adjusted for inflation, so just chugging along at modest levels;

Highlights

The goods portion of June’s trade deficit is a bit deeper than expected, at $68.3 billion vs Econoday’s consensus for $67.2 billion. Exports fell 1.5 percent in the month but follow an upward revised 2.6 percent gain in May. Imports rose 0.6 percent and very near an upward revised May increase of 0.5 percent.

There was a very steep decline in exports of consumer goods in June, down 8.5 percent to $16.3 billion, as well as vehicles, down 6.1 percent to $12.7 billion. Capital goods exports, a key U.S. strength, also fell, down 1.8 percent to $47.3 billion. Exports of foods & feeds, which are in focus given trade troubles, dipped 0.5 percent to $14.0 billion.

Imports of consumer goods, the nation’s sore point on trade, jumped 3.6 percent to $53.3 billion with vehicle imports up 1.6 percent to $30.2 billion. Imports of capital goods fell 2.7 percent to $57.4 billion with food & feed imports down 1.7 percent to $12.2 billion.

These results may trim back estimates for net exports in tomorrow’s second-quarter GDP report but they follow very positive results in May and April.

Highlights

Retail inventories were unchanged in June following an unrevised 0.4 percent build in May. The lack of a retail build, together with no change for wholesale inventories in June and a 0.1 percent decline for durable inventories, both also released morning, will be trimming back inventory estimates for tomorrow’s second-quarter GDP report.

Housing continues to roll over and is no negative year over year:

Highlights

Purchase applications for home mortgages fell a seasonally adjusted 1 percent in the July 20 week, while applications for refinancing increased by 1 percent from the previous week. Unadjusted, purchase applications were 2 percent higher than in the same week a year ago. The refinance share of mortgage activity rose 0.3 percentage points from the prior week to 36.8 percent. The average interest rate for 30-year fixed rate conforming mortgages ($453,100 or less) remained unchanged at 4.77 percent. Purchase applications dipped into negative year-on-year territory in June and while managing to post modest gains compared to the year ago level in recent weeks, the jump in financing costs by more than a half of a percentage point since the start of the year (though roughly unchanged since April) is likely to continue to suppress homebuyer appetites. Later this morning, the release of the New Home Sales report for June will provide further insights into homebuyer activity.

Highlights

New home sales unfortunately join the host of housing data showing weakness. Sales fell 5.3 percent in June to a 631,000 annualized rate vs Econoday’s consensus for 668,000. The disappointment comes despite price concessions as the median fell a monthly 2.5 percent to $302,100. Year-on-year, the median is down 4.2 percent vs a 2.4 percent rise for sales.

But good news comes from supply which rose 1.7 percent to 301,000 new homes on the market. Relative to sales, supply is at 5.7 months vs 5.3 and 5.6 months in the prior two months.

New home sales in the West, which is a key region for home builders, fell 5.2 percent with this yearly rate at minus 15.0 percent. The Northeast is the smallest region for new home sales but sales here have been picking up, jumping 37 percent in the month for a 21 percent year-on-year increase. Sales in the Midwest and South were weak in June, down a monthly 13.4 and 7.7 percent respectively.

The Spring selling season was a poor one for the housing sector with both new sales and especially resales showing little life. Less-than-favorable mortgage rates are one reason for the slowing as are constraints on new building including scarcity of skilled construction labor as well as materials.

Rolling over after not even getting to half what they were in the last cycle, and population adjusted they are well below prior cycles:

Chinese investors have become net sellers of U.S. commercial real estate for the first time in a decade, reversing a yearslong trend when these buyers spent tens of billions of dollars and helped boost the market for hotels and other properties.
Chinese insurers, conglomerates, and other investors sold $1.29 billion worth of U.S. commercial real estate in the second quarter, while purchasing only $126.2 million of property, according to data firm Real Capital Analytics. This marked the first time that Chinese investors were net sellers for a quarter since 2008.
The more than $1 billion in net sales reflects how much the Chinese government’s attitude toward investing overseas has changed in recent months.

Puerto Rico still losing people. When the Fed’s take over they don’t work to grow the economy, but only to limit PR gov expenditures to PR tax revenues, which supports a downward spiral:

Trump warns Iran’s President Rouhani: ‘NEVER, EVER THREATEN THE UNITED STATES AGAIN’

President Donald Trump threatens his Iranian counterpart in a Twitter post.

Monday morning, Trump’s hawkish national security advisor, John Bolton, backed the president’s rhetoric.

Tensions between Iran and the U.S. have grown since Trump withdrew America from a nuclear deal struck during President Obama’s administration.

Still looks to me like the rate increases have offered some support for the economy and also pushed cpi higher? Interest income channels? Forward pricing channels? ;)

Corporate debt growth decelerating;

Highlights

The Small Business Optimism Index retreated by 0.6 points in June to 107.2, the sixth highest reading in the NFIB survey’s 45 years history. Beating the consensus forecast calling for a more substantial decline after May’s upward surge to the second highest level in the history of the survey, the optimism index remained exceptionally strong in June mainly thanks to improvement in the employment and inventory components. Gains of 2 points to a net 20 percent in plans to increase employment and in plans to increase inventories to a net 6 percent were accompanied by a 4-point gain to a net 0 percent of business owners viewing current inventory levels as too low and a 3-point gain to a net 36 percent in current job openings. Expected credit conditions were the last among the gainer components in June, rising 1 point to a net minus 4 percent.

Despite the stronger than expected index reading for the month, half of the 10 survey components posted declines, most of which were sizable, though mostly from very strong levels, led by expectations of higher real sales, which fell 5 points in June to a still very solid net 26 percent. A drop of 5 points to a net 29 percent was also seen in the view that now is a good time to expand, while expectations that the economy will improve fell 4 points to a net 33 percent and earnings trends also shed 4 points to a net minus 1 percent. Plans to make capital outlays fell 1 point to a net 29 percent.

Business owners surveyed continued to point to difficulties in finding qualified workers and identified this as the single most important business problem, as 36 percent reported job openings they could not fill in the current period, up 3 points and matching the survey record high set in November 2000. Openings for skilled workers were reported by 31 percent of small firms while 13 percent have openings for unskilled labor, both ahead of the May readings.

The survey also showed the threat of inflation as subdued in the current environment, with the net percent of owners raising average selling prices falling 5 points to a seasonally adjusted net 14 percent, and a net 24 percent planning price hikes, down 2 points from the prior month. Perhaps surprising given the tightening on the jobs front, reports of higher compensation were down 4 points from May’s record reading to a net 31 percent, though plans to raise compensation did rise by 1 point to net 21 percent.

Lots of job openings at lower wages as companies work to replace higher wage employees:

Highlights

Job openings slipped back but still remain very abundant, at 6.638 million in May vs an upward revised and record 6.840 million in April. Openings are up 16.7 percent compared to May last year and are far above hiring, at 5.754 million in May for comparatively distant 4.9 percent year-on-year gain.

Openings are not only above hirings but they are also above the 6.564 million unemployed who are actively looking for work. This inversion — which strongly underscores lack of available capacity in the labor market — first appeared in April and marks a first in data going back 20 years. It’s the abundance of openings that are pulling in discouraged workers back into the workforce looking for jobs.

Of special note in today’s report is another rise in the quits rate, up 1 tenth to 2.4 percent. Jerome Powell, at his FOMC press conference last month, characterized the quits rate as elevated, a sign that workers are looking for other employers and higher pay.

Job openings represent labor demand and are a complementary statistic to unemployment which represents labor supply. And their relationship is a hot topic among Federal Reserve policy makers who are raising rates to head off potential imbalances, specifically inflationary imbalances, in the labor market.

Automotive News

DETROIT — General Motors has expanded its use of lower-paid workers in a suburban Detroit assembly plant to help defray the cost of making self-driving electric vehicle prototypes, through a deal that has raised tensions within the UAW. GM and the UAW this year reached an Autonomous Vehicle Memorandum of Understanding that lets the automaker offer reduced wages and benefits for some jobs at its plant in Orion Township, Mich. The plant makes Chevrolet Bolt EVs and its self-driving variant, the Cruise AV, as well as the Chevrolet Sonic. The agreement could be used as a template for lowering costs at other car plants that have experienced production declines because of slow-selling products. GM is analyzing the future of its car plants as its production shifts toward more crossovers, SUVs and EVs, according to the union. But the arrangement aggravates a sore spot with the UAW. The workers are typically paid less than employees of the Detroit automakers, and union leaders worry that their presence in an otherwise underused plant effectively takes work from higher-paid employees covered by the UAW’s main contracts. “Everyone agrees that this situation sucks,” Cindy Estrada, a UAW vice president, wrote in an April 19 letter to members. “But what would suck even more would be to have GM shut down any of our plants.”

This is the employment growth rate for each year compared to the same date 10 years prior. You can see how we dipped further and recovered more slowly in this latest cycle. It also gives the appearance that we haven’t yet recovered from the damage to aggregate demand from the surplus years of the late 1990’s:

Last month revised a lot lower, and this month weak as well, as inflation-adjusted spending growth remains negative:

Note from US Census:

Notice: With this release, unadjusted data have been revised back to January 2016 and seasonally adjusted data back to January 2011. All revised estimates are available on our website. With each May release, seasonally adjusted data will now be revised for an additional five years beyond the revision period for unadjusted data. Research has shown that this revision span should produce more reliable seasonally adjusted time series.

The rolling averages declined. Also note that inflation is grabbing hold, and that inflation adjustments bring this series into contraction.

Serious weakness in Manhattan real estate:

Manhattan real estate has worst second quarter since financial crisis

The Saudis continue to set price via their posted discounts to benchmarks, and then let quantity adjust to demand. The President isn’t the only one who has no clue that’s how it’s been working for a very long time:

Trump Asks Saudi Arabia to Pump More Oil, Citing High Prices

(WSJ) Publicly, Riyadh has committed to only modest output increases, but behind the scenes the kingdom is ramping up quickly—moving from just over 10 million barrels a day a few months ago to a target of close to 11 million barrels a day by July. “I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels,” Mr. Trump said in the tweet, citing a conversation with Saudi King Salman. “Prices to [sic] high! He has agreed!” the tweet said, citing “turmoil & dysfunction” in Iran and Venezuela. A senior Saudi official said the kingdom assured the U.S. of its capability to meet demand.