Monday's Scoop: Anxious🌤️

Hey friend - hope you had a great weekend enjoying the start of summer!

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Here’s what you need to know today to inform your work, spending, and investments…

1. Americans have cut back spending as real incomes shrink.

2. Inflation isn’t getting worse, but it’s not getting much better.

3. The manufacturing sector continues to struggle.

Unemployment Rate: 3.9%
^{Still near the lowest rate in 50+ years}

The manufacturing sector still hasn’t recovered from over a year of slumping business activity. After signaling a brief revival in March, the Institute for Supply Management reported the 2nd consecutive month of contracting business activity in the manufacturing sector. The sector has contracted for 18 of the last 19 months, the worst stretch in over two decades. New product orders fell in May by the most in two years. Manufacturing accounts for 10% of the US economy and has suffered as consumers cut back on spending on goods.

Inflation Rate: +3.4% (YoY), +0.3% (MoM)
^{Policymakers aim for 2% YoY inflation (April CPI)}

Americans can’t save as much amid inflated living costs and weak income growth. The Commerce Department reported real disposable income, adjusted for inflation, declined in April. Despite above-average economic and investment growth, our real after-tax income has only grown 1% over the past twelve months. Everyday expenses continue to demand a more significant portion of that after-tax income. The personal savings rate, what we’re able to keep after tax and monthly expenses, fell again in April to the lowest level in 16 months. Americans can only save 3.6% of their disposable income, half of what they saved in January 2020.

People are spending less as the cost of living keeps rising. The Commerce Department reported personal consumption expenditures increased by only 0.2% in April. When considering inflation, spending declined by 0.1%. Higher prices on groceries and services have strained budgets, and wages aren’t keeping up.

Inflation is improving, but not by much. Policymakers’ preferred inflation gauge, the Personal Consumption Expenditures Price Index (PCE), rose 0.3% in April, or 0.2% when excluding volatile food and energy costs. The one-year change in the cost of living was only 2.7% over the past year, much closer to the normal levels policymakers have been trying to reach. Monthly inflation has held steady at around 0.3% for the past three months, far lower than the worst periods of the past few years but still well above pre-pandemic averages.

The Market: ⬆️ +0.1%
S&P 500: 5,283.40
1Mo: +3% | 1Yr: +24% | 5Yr: +84%

The market kicked off the month without a clear direction as investors worried about more signs of a slowing economy. Consumers, the economy's engine, are increasingly struggling each day, and manufacturing isn't doing well either.