Spending Slows, Stocks Rise, Enjoying Freedom

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July 2, 2023


THE FIRST QUARTER WAS BETTER THAN FIRST REPORTED: The U.S. Bureau of Economic Analysis revised its report on first quarter Gross Domestic Product growth. Instead of growing at a 1.3% annual rate, as first reported, the revised numbers indicate that U.S. GDP grew by 2.0%.

INFLATION MEASURES CONTINUE TO SHOW EASING: An inflation measure watched closely by the Fed, the PCE price index, increased by 0.1% in May, and 3.8% over the past twelve months, down from 4.3%. This is the lowest reading for this index in two years. The so-called “core” PCE price index (which excludes food and energy prices) over twelve months moved down just a bit from 4.7% to 4.6%

FIRST HALF OF YEAR ENDS STRONG: U.S. stock prices bounced back after a pause the prior week. The increases were driven by optimism about inflation and the economy. The tech sector has had an exceptionally strong first half with the NASDAQ Composite Index registering a 31.73% gain.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

U.S. CONSUMER SPENDING: In May, U.S. consumer spending data showed that consumers are slowing their spending a bit. Consumer spending was up only 0.1%. Spending on motor vehicles plunged by over 20%. Spending on goods overall decreased by 0.9%. Outlays on services rose by 0.4%. When adjusted for inflation, spending was flat.

STUDENT LOANS WILL HAVE AN IMPACT ON CONSUMER SPENDING: The Biden Administration’s plan to forgive some student debt was invalidated by the U.S. Supreme Court last week, and the pause on student loan debt ends in September. This resumption will be a drag on consumer spending going into the fall.

DEPLETED SAVINGS MAY NOT HAVE AN IMPACT ON CONSUMER SPENDING: During the first 15 months after world governments responded to COVID-19 by shutting down economies, Americans saved about $2.1 trillion more than normal. As of May 2023, that $2.1 trillion in excess savings has decreased to $600 billion. It is likely that this excess savings will be gone by the end of the year. Much of the excess savings, nearly half, was attributable to foregone consumer spending, with the rest coming from extraordinary government aid disbursements. Unfortunately, most of the excess savings went to those at the top of the economic ladder. Therefore, the highest-income Americans ended up with a lot of spare cash. They kept their jobs and spent less. Their spending fuels income and creates jobs for those at the lower end of the economic spectrum. Since it is the wealthy whose excess savings is disappearing, and those who are less wealthy have jobs and healthy pay raises, this depleted spending may not have much of an effect on aggregate spending in the U.S. economy.

U.S. HOUSING PRICES REMAIN ABOVE BUBBLE PEAK LEVELS: In 2006, U.S. real estate prices hit their bubble peak, and then plummeted. In real terms, taking inflation into account, prices surged past the 2006 bubble peak recently. Prices nationally have fallen 3.8% in real terms since the most recent peak, but remain above the 2006 peak in real terms.

CHINESE ECONOMY STRUGGLING: Manufacturing activity in China decreased for the third-straight month.

ENJOYABLE EVENING AT THE CHESAPEAKE AND DELAWARE CANAL: Deb and I enjoying a pleasant evening on the C&D Canal listening to live music. My wife laughs a lot because of my remarkable sense of humor.

Have a great week!

Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®
Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax
(610) 628 4545

“Posterity! You will never know how much it cost the present generation to preserve your freedom! I hope you will make good use of it.” John Adams

“But let justice roll down like waters, and righteousness like and ever-flowing stream.” Amos 5:24 (ESV)

CHINESE ECONOMY STRUGGLING: https://www.ft.com/content/386580c9-88f2-4368-84ff-fbe2d962e062
THE FIRST QUARTER WAS BETTER THAN FIRST REPORTED: https://www.bea.gov/news/2023/gross-domestic-product-third-estimate-corporate-profits-revised-estimate-and-gdp-industry
INFLATION MEASURES CONTINUE TO SHOW EASING: https://www.bea.gov/news/2023/personal-income-and-outlays-may-2023
U.S. CONSUMER SPENDING: https://www.msn.com/en-us/money/markets/us-consumer-spending-hits-speed-bump-inflation-picture-mixed/ar-AA1dgnoh
DEPLETED SAVINGS MAY NOT HAVE AN IMPACT ON CONSUMER SPENDING: https://theovershoot.co/p/americas-excess-savings-are-going
U.S. HOUSING PRICES REMAIN ABOVE BUBBLE PEAK LEVELS: https://calculatedrisk.substack.com/p/inflation-adjusted-house-prices-38-404

(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.




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    July 3, 2023


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