Week in Review: June 25, 2021

The housing market continues to show signs of slowing, even as pricing remains strong. Both existing and new home sales fell modestly in May, hampered by limited inventory.  New homes sales were also impacted by shortages of land, labor, lumber and other raw materials. Compared to a year ago, existing and new home sales increased 24% and 9%, respectively.

Core PCE inflation, the Fed’s preferred measure of inflation, rose 3.4% on an annual basis, the fastest pace since April 1992.  Now well above the Fed’s long-term target of 2%, it remains to be seen how long the Fed will let inflation remain at these levels. For now the Fed appears more focused on the employment part of its dual mandate, meaning it is likely to tolerate higher inflation for the time being, especially as it continues to believe the current surge in prices will most likely turn out to be temporary.

Personal income declined 2% in May, following a 13% decline in April, as the benefits of the most recent round of coronavirus stimulus continued to recede.  Overall, spending for the month was flat. However, consumers continued to shift their spending from goods to services with the former decreasing 1.3%, while the latter increased 0.7%. This was evidenced by a 16% increase in spending at restaurants by households with incomes greater than $200K.

Durable goods orders disappointed to the downside, particularly core business orders which slipped 0.1% compared to the prior months 2.7% increase. Supply chain bottlenecks and a shortage of workers were the primary culprit.