Among last week’s important economic data releases, May’s housing sales, durable goods orders, and personal income and spending reports stood out. The pace of existing home sales fell for the fourth month in a row, as limited supply and rising prices hindered sales. Once again, this week will be packed with updates, including a look into consumer and manufacturer sentiment and the release of the June employment report.
Last Week’s News
On Tuesday, the May existing home sales report was released. Sales of existing homes fell by 0.9 percent during the month, marking a smaller decline than the 2.1 percent drop forecasted by economists. Existing home sales have declined for four straight months, as low levels of homes available for purchase and rising prices continue to serve as a headwinds for growth. Nonetheless, the pace of existing home sales remains above pre-pandemic levels. Low mortgage rates and shifting home buyer preference due to the pandemic have been encouraging prospective home buyers to enter the market. Accordingly, the housing sector has been one of the bright spots in the economic recovery since initial lockdowns were lifted. Currently, the recent slowdown in existing home sales signals that the industry is facing rising headwinds despite continued healthy levels of home buyer demand.
On Thursday, the initial jobless claims report for the week ending June 19 was released. During the week, 411,000 initial unemployment claims were filed. This figure marked an improvement from the upwardly revised 418,000 initial claims filed the week before, but was above economist estimates for 380,000 claims. Initial claims can be volatile on week-to-week basis, but the four-week moving average for these claims remained near the pandemic-era low of 396,000 claims recorded for the week ending June 12. Compared with data from the end of January 2021, when the four-week moving average for initial claims peaked at 866,000, this result is a notable improvement. We’ve made steady progress in getting the number of initial unemployment claims down throughout this year, largely due to improvements on the public health front and nationwide reopening efforts. So, although this report came in above economist estimates, the long-term trend points toward continued improvements for the labor market.
Thursday also saw the release of the preliminary estimate of the May durable goods orders report. The report showed that durable goods orders rose by 2.3 percent during the month, slightly below the 2.8 percent increase forecasted. This result represents a solid rebound for orders, following an upwardly revised 0.8 percent decline in orders in April. April’s drop in orders was primarily driven by a decline in volatile transportation orders, while May’s headline gain was partially caused by a rebound in transportation orders. Core durable goods orders, which strip out the impact of volatile transportation orders, increased by 0.3 percent in May, below estimates for a 0.7 percent increase. April’s core durable goods orders growth was revised up from 1 percent to 1.7 percent, however. Accordingly, the miss in May against forecasts is not as bad as it may seem at first glance. Core durable goods orders are often viewed as a proxy for business investment, so the increase in core orders in May was an encouraging signal. Businesses continued to invest during the month despite headwinds created by rising prices.
On Friday, May’s personal income and personal spending reports were released. The report showed that personal spending remained flat during the month, in a result below economist estimates for a 0.4 percent increase. April’s spending growth was revised up from 0.5 percent to 0.9 percent, which helps account for the miss against the spending forecasts for May. Previously, in March, personal spending increased by 5 percent, due to stimulus payments and reopening efforts. Since then, the slowdown in spending indicates that the tailwind from the stimulus checks has largely faded. In addition, rising prices may be starting to affect consumer spending decisions. Personal income has been very volatile on a month-to-month basis throughout the pandemic, driven by shifting federal stimulus payments. Personal income fell by 2 percent in May, in a smaller decline than the 2.5 percent drop forecasted. This result follows a 13.1 percent drop in income in May and a 20.9 percent increase in March. Despite the drop in income in May, the personal savings rate remains well above pre-pandemic levels. This should allow for further consumer spending growth in the months ahead.
We finished the week with Friday’s release of the second and final estimate of the University of Michigan consumer sentiment survey for June. The preliminary estimate indicated that the index increased by more than expected to start the month. But Friday’s release showed that confidence declined from 86.4 mid-month to 85.5 at month-end, against calls for a modest increase to 86.5. Despite the intramonth decline, this report represents an improvement from May’s month-end result of 82.9. The index now sits at its second-highest level since the start of the pandemic, indicating continued improvements for consumer sentiment throughout the year. The subindex that measures consumer expectations for future economic conditions rose during the month. It went from 78.8 at the end of May up to 83.8 at the end of June, driven in part by declining consumer inflation expectations. While the final report for June disappointed slightly, the improvement compared with May’s numbers signals that consumer confidence has continued to strengthen. This could support additional consumer spending growth in June.
What to Look Forward To
Tuesday will see the release of the Conference Board Consumer Confidence Index for June. Economists expect to see this widely followed measure of consumer confidence increase from 117.2 in May to 119 in June. If estimates hold, this result would bring the index to its highest level since the start of the pandemic. In addition, it would echo the improvements made during the month for the University of Michigan consumer sentiment survey. What’s been driving the uptick in consumer confidence throughout the year? Largely, the gains are due to improvements on the public health front and the associated reopening efforts throughout country. Historically, improving consumer confidence has supported consumer spending growth, so any increase for the index would be a positive development. Still, work remains to be done to get the index back to the pre-pandemic high of 132.6 we saw in February 2020.
On Thursday, the initial jobless claims report for the week ending June 26 is set to be released. Economists expect to see the number of initial unemployment claims fall to 384,000, down from 411,000 the week before. If estimates prove accurate, this report would represent the second-lowest level for weekly initial jobless claims since the start of the pandemic. Furthermore, the four-week moving average for initial claims would sit at a new pandemic-era low. As previously mentioned, we’ve made solid progress in getting initial jobless claims down over the course of the year. To get closer to historically normal claim levels, however, much work must still be done. For reference, in 2019, before the start of the pandemic, we averaged roughly 220,000 initial claims a week. Given that claims are still historically high, this weekly report will continue to be a widely monitored look at the health of the labor market.
On Thursday, the ISM Manufacturing index for May is set to be released. This measure of manufacturer confidence is expected to decline slightly, from 61.2 in May to 61 in June. As this is a diffusion index, where values above 50 indicate expansion, a gain would indicate continued growth for manufacturing in the face of headwinds created by rising prices and supply chain bottlenecks. Once initial lockdowns were lifted last year, manufacturer confidence has improved markedly. High levels of consumer demand and lean business inventories supported 2020’s manufacturing rebound. Since then, we’ve seen further improvements for manufacturer confidence, driven in large part by nationwide reopening efforts and the economic recovery in 2021. Notably, the index hit a 38-year high in March. Then, in April, rising material costs led to a modest pullback, which was followed by a partial rebound in May. Looking forward, high levels of manufacturer confidence are expected to support additional growth for the manufacturing sector as part of the ongoing economic recovery.
Friday will see the release of the international trade report for May. Economists expect to see the trade deficit widen during the month, from $68.9 billion in April to $71 billion in May. If estimates hold, this report would bring the trade deficit to its second-widest level on record, trailing only the $75 billion deficit we saw in March. According to previously released data, the trade deficit for goods widened in May, which explains the anticipated widening of the overall deficit. The widening of the goods deficit was driven by a 0.3 percent drop in exports of goods and a 0.8 percent increase in imports during the month. Still, despite the decline in goods exports in May, overall export volume has recovered closer to pre-pandemic levels. Looking forward, the continued global economic recovery is expected to support additional export growth throughout the year. As a result, the deficit should return to more normal levels as the global economy continues to recover.
We’ll finish the week with Friday’s release of the June employment report. Economists expect 700,000 jobs to be added during the month, in a step up from the 559,000 jobs added in May. If estimates hold, June would represent the best month for job creation since March, when 785,000 jobs were added. Weekly initial jobless claims showed notable improvement throughout June, which indicates that the pace of layoffs fell as the nationwide reopening efforts picked up speed. The underlying data is also expected to show further improvements. Forecasts are calling for the unemployment rate to fall from 5.8 percent in May to 5.6 percent in June. This figure would represent the lowest unemployment rate since the start of initial lockdowns last year. Still, despite the improvements for the job market since the end of initial lockdowns, we have a long way ahead to return to pre-pandemic employment levels. So, although any improvement in June would be welcome, this monthly release will continue to be closely monitored as an important indicator of the overall economic recovery.
That’s it for this week—thanks for reading and have a happy Fourth of July!