US: Tepid consumption, strong manufacturing

5 min
Dan North
Dan North Senior Economist for North America

Real disposable personal income rose a disappointing +0.2% m/m in May, putting the y/y rate at a weak +1.7%. Real personal consumption expenditures (PCE) were flat on the month, bringing the y/y rate down to a tepid +2.3% from +2.9% six months ago. PCE inflation rose from 2.0% y/y to 2.3%, while the core rate, the Fed’s favorite inflation gauge, rose from 1.8% y/y to 2.0%. Notably, it was the first time in six years that core PCE reached the Fed’s 2% target, bolstering expectations of two more Fed hikes this year. The manufacturing sector, unlike the consumer, is thriving. The June ISM manufacturing index rose from 58.5 to a very strong 60.2. Supplier deliveries rose a steep +6.2 points to 68.2; normally that would be a sign of economic strength, but it is instead being driven by a lack of truckers. Survey respondents were “overwhelmingly concerned” about tariffs. In a separate report, core orders for durable goods rose +0.3% m/m to a solid +6.5% y/y rate. Shipments of core orders, which feed into the GDP calculation, gained +0.2% m/m to a strong +6.3% y/y.