Robert Genetski: Conflicting economic reports, but new orders for durable goods are down and clarity may be coming.
by Robert Genetski
The Week That Was
S&P’s advanced early May business survey surged to 54.4, the highest reading in over two years. The increase came as the service sector and inflation showed renewed strength.
Today’s report on April new orders for durable goods shows new orders for durable goods down 1 percent over the past year in current dollars. This contradicts surveys showing a booming economy.
A problem with economic news is that it has been inconsistent. Surveys showing a booming economy are contradicted by other surveys showing serious problems. Some of these conflicts may be resolved to some extent with next week’s reports.
Things to Come
The economic news next week includes Thursday’s update to first quarter GDP and Friday’s consumer spending, income and inflation report.
The GDP update will include corporate profits for all US companies. This will provide the necessary information on Gross Domestic Income (GDI), which measures the GDP from the income side.
First quarter 2024 personal income rose at a 7.2 percent annual rate. Since personal income is the largest component (85 percent) of GDI, it is likely the quarterly increase in GDI will be close to a 7 percent rate.
Friday’s consumer spending, income and inflation report for April includes the Fed’s favorite measure of consumer inflation. The Cleveland Fed estimates April inflation at a 0.23 percent rate, bringing yearly inflation down to 2.7 percent from 2.8 percent.
In addition to the potential for some slightly better news on inflation, the spending and income reports for April should shed some light on the conflicting news from various business surveys. However, overall prices are still high and consumers know it, even if government statistics say otherwise.
Outlook
Economic Fundamentals: positive
Stock Valuation: S&P 500 overvalued by 32 percent
Monetary Policy: restrictive
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