The Headline Illusion Continues

This week, we discuss the PCE report, new home sales, GDP, and PMI. Inflation continues to run well above the Federal Reserve's target. While personal income growth appeared strong, much of the increase reflected a one time government payment. Adjusting for this temporary boost, the savings rate fell to just 2.8%, suggesting that many consumers are increasingly stretched. New home sales surprised to the downside, while the median months for sale rose to its highest level since 2021, underscoring further weakness in the housing market. Although the final estimate of first quarter GDP was revised higher, the increase was driven primarily by a decline in imports rather than stronger domestic demand. More concerning, consumption growth was revised down from 1.0% in the initial estimate to just 0.5% in the final estimate, adding to evidence of a slowing consumer sector. Meanwhile, the headline manufacturing PMI appeared robust, but much of the strength reflected firms building inventories in response to supply concerns and policy uncertainty. Manufacturers also reported layoffs amid weakening demand and elevated uncertainty. Taken together, while several headline figures suggested resilience, the underlying details painted a considerably weaker picture of the economy.