U.S. personal spending rose 0.4 percent in August. What does it mean for the U.S. economy and the gold market?

Waiting for today’s non-farm payroll report, it is worth analyzing the U.S. data from this week. Probably the most important piece of information was the report on August personal income and outlays. Consumer spending rose 0.4 percent, as in July, driven again by vehicle sales, since U.S. car and light truck sales rose to 17.8 million in August, the highest level in 10 years. U.S. auto sales were even stronger in September (17.8 million), but we will see in October whether the Volkswagen scandal affects the industry. Personal outlays rose at least 0.3 percent in each of the last six months, which is a sign that economy continues to expand. More importantly, personal incomes rose 0.3 percent last month, which may indicate improvement in the labor market (wages and salaries rose 0.5 percent). On the other hand, inflation was unchanged in August. The PCE price index increased less than 0.1 percent in August on a monthly and 0.3 percent on an annual basis. The core PCE index (without food and energy) increased 0.1 percent and 1.3 percent over the twelve months.

Regarding other data, U.S. pending home sales fell 1.4 percent in August to a five-month low and the Case-Shiller 20-city seasonally adjusted home price index decreased 0.2 percent. The decline for the third month in a row is a striking weakness. U.S. manufacturing also fails to impress. The Chicago PMI fell to 48.7 in September from 54.4 in August, thus it entered into contractionary territory, while the nationwide ISM index decreased to 50.2 percent, just above the cutoff mark between expansion and contraction. Following this report and the Advance Trade Report showing the widening of the balance of goods deficit, the GDPNow forecast for GDP growth in the third quarter plunged to 0.9 percent. Surprisingly, this week was not the best for the gold. This is probably because of the ADP report, saying that companies in the U.S. private sector added 200,000 jobs in September, more than expected. Strong ADP data boosted expectations for today’s non-farm payroll report, which exerted downward pressure on the gold.

The take-home message is that personal spending remains quite healthy, but manufacturing looks recessionary. In such an environment the Fed hike is not very likely, however, a strong non-farm payroll report may convince the FOMC members to tighten. If investors interpret the interest rate hike as a confidence vote on the U.S. economy, the price of gold will be under pressure.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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