Soft Consumer Spending

A tepid rise in consumer spending during the month of July ended a week of mild economic numbers that point to a U.S. economy struggling to sustain robust growth. Personal spending fell from an upward revised 0.6% in the month of June to just 0.1% in July.  Economists were calling for a 0.3% gain. Spending, which is driven by growth in jobs and wages, is unlikely to improve markedly without a noticeable improvement in these areas. Friday’s jobs report will provide an indication of whether growth in the jobs market will start to bolster spending. The backup in 10-year treasuries has increased mortgage rates approximately 100 basis points, to about 4.5% from 3.5%. MBA mortgage applications declined 2.5% last week, signaling a slowdown in the housing recovery. Finally, durable goods orders, which measures domestic orders for factory hard goods, declined 7.3% last month, the largest decline since August 2012. These soft numbers argue for a slower start to the second half of the year, and it has become more apparent that consumers are not going to drive growth. This leads us to ask, where will growth come from?