Strong economic data for July, weaker for August

Market focus yesterday was largely on the speech by Federal Reserve chairman Ben Bernanke and President George W. Bush's announcement of proposals to help subprime borrowers, but the data on the US economy were actually quite good, at least for the month of July. Reuters reports:

A core inflation index from the Commerce Department rose 0.1 percent in July, holding the year-on-year increase in the Federal Reserve's favorite inflation gauge to 1.9 percent for the second straight month.

Analysts polled by Reuters were expecting the core PCE price index, which excludes often-volatile food and fuel costs, to gain 0.2 percent. The June rise was revised to 0.2 percent, from an originally reported 0.1 percent...

The Commerce Department said personal income rose a bigger-than-expected 0.5 percent in July, the largest month-on-month gain since a 0.8 percent rise in March.

Personal spending rose 0.4 percent in July after an upwardly adjusted 0.2 percent increase for June. Analysts polled by Reuters were expecting both personal income and personal spending to rise 0.3 percent...

New orders at U.S. factories jumped by a much bigger-than-expected 3.7 percent in July and a strong 2.4 percent without the volatile transportation component, the Commerce Department said.

Analysts polled by Reuters expected orders to rise 0.8 percent in July after an upwardly revised 1.0 percent gain in June, originally reported as a 0.6 percent rise.

July non-defense capital goods orders excluding aircraft, viewed as a good proxy for business spending, rose 1.7 percent, slightly less than the 2.2 percent July gain reported on August 24, the Commerce Department said.

There were some negatives though in the August data.

On a more worrisome note, a Reuters/University of Michigan survey of consumer sentiment index fell to the lowest level in 12 months as households grew uncertain about economic prospects due to high food and fuel prices and recent financial market turmoil.

Another gauge of future U.S. economic growth fell to a 27-week low in the most recent week due to higher jobless claims, lower commodity prices and softer housing activity, according to The Economic Cycle Research Institute, an independent analysis firm.

Confidence also fell in the euro zone in August while inflation remained contained in July. Bloomberg reports:

An index of sentiment among executives and consumers in the 13 nations that use the euro fell to 110 from 111 in July, the European Commission in Brussels said today. That compares with the 110.3 median forecast of 25 economists in a Bloomberg News survey and is the lowest since February. Inflation held at 1.8 percent in August, according to a separate report...

Consumers nonetheless expect inflation to pick up in coming months, according to today's data. A gauge of price expectations over the next 12 months increased to 26 this month from 19 in July, the commission said.

Rising employment may support consumer spending and economic growth, adding to price pressures. The euro-area jobless rate held at a record-low 6.9 percent in July, according to a separate report today.