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Weekly Economic Report 6.28.24

The latest monthly spending and income data suggest that nominal growth has continued to cool to 4.5%, with inflation slowing to a 2.4% running rate. That suggests a soft landing at roughly 2.0% growth, just ahead of potential – as we have long expected. The question now is whether the angle of descent is indeed a soft landing, or a more abrupt halt. We guesstimate that real person consumption will come in at 1.6% in the second quarter, with real GDP at 1.8%, only slightly better than the revised first quarter at 1.4%. We are heartened by the 0.5% uptick in real disposable income in May – after four months with a total increase of 0.2%. However, we are more concerned by the nominal 0.2% hike in nonfarm proprietors’ income. That caps a streak of six months with only a 1.0% gain, 2.0% annualized – and behind inflation. For the full year, nonfarm proprietors’ income is up 5.9%, and ahead of compensation at 5.1%, but the direction of travel is wrong. Six months of weak growth in this profits proxy suggests growing risk for early 2025 – but smaller firms rebounded from this level of profit growth in 2018, 2019 and 2023. Are we in a pause that refreshes?

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