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Last week, the economic highlight was the housing sector, which has continued to impress since reopening efforts took hold, driven by record low mortgage rates. This will be a busy week for updates, with reports scheduled to cover wide swaths of the economy.
Last week’s news
We started the week with Monday’s release of the National Association of Home Builders Housing Market Index for August. This measure of home builder confidence increased by more than expected during the month, rising from 72 in July to 78 in August, against calls for a more modest increase to 74. This result marks the second straight month in which home builder confidence came in above expectations, as the index previously jumped from 58 in June to 72 in July. This better-than-anticipated result in August brought the index to a record high it last hit in 1998. Home builder confidence has been boosted by record low mortgage rates that have been driving additional prospective home buyers into the market since reopening efforts started in May. The swift rebound we’ve seen in home builder confidence following the seven-year low of 30 the index hit in April is very impressive and has supported a rebound in new home construction.
Speaking of new home construction, Tuesday saw the release of July’s building permits and housing starts reports. Both permits and starts blew away expectations, rising by 18.8 and 22.6 percent, respectively, against forecasts for roughly 5 percent growth. The rebound was widespread, with starts increasing in all four geographic regions, with notable strength in the Midwest. This report, which marks the largest monthly gain for housing starts since 2016, brought the pace of new home construction close to recent highs set before the pandemic hit. Building permits now sit near the recent 12-year high set in January. The record low mortgage rates driving increased buyer demand and home builder confidence have served as a tailwind for the entire housing sector, which has been one of the bright spots in the recent recovery.
On Wednesday, the FOMC minutes from the Fed's July meeting were released. The Fed did not change policy at this meeting, voting unanimously to keep the federal funds rate at virtually zero. As expected, the minutes showed that Fed members were anxious about the public health outlook and expressed concerns that the pandemic poses a considerable risk to the economic outlook over the short and intermediate term. The minutes also showed a continued desire for further fiscal stimulus from Congress, which would be viewed by the Fed as a positive development. FOMC members also discussed what types of future monetary stimulus might be on the table if further support is needed, with an emphasis on enhanced forward guidance. Ultimately, the minutes revealed no major surprises. The Fed is expected to remain very supportive until the economy shows signs of fully recovering from the disruption created by the pandemic, especially regarding the labor market.
On Thursday, the weekly initial jobless claims report for the week ending August 15 was released. The report showed 1.106 million initial unemployment claims were filed during the week, up from 971,000 the week before and above estimates for a fall to 920,000. Initial jobless claims had previously declined for two weeks a row, after rising case counts in July caused initial claims to rise for the first time since March. This disappointing result highlights the continued pressure on the labor market and the long road back to get to pre-pandemic employment levels. While this report was a step in the wrong direction for initial claims, continuing unemployment claims, which are reported with a one-week lag, fell by more than expected, from 15.486 million to 14.844 million, against forecasts for 15 million.
We finished the week with Friday’s release of July’s existing home sales report. Sales of existing homes increased by more than expected during the month, rising by 24.7 percent against calls for a 14.6 percent increase. This result, which follows a downwardly revised 20.2 percent increase in June, represents the single best month for existing home sales on record. It brought the pace of existing home sales to its highest level since 2006, highlighting the strength in the housing market once reopening efforts took hold. As previously mentioned, record low mortgage rates have been the major driver of this rebound in housing and continued falling rates in July certainly helped bolster the impressive surge in sales.
What to look forward to
On Tuesday, the Conference Board Consumer Confidence Index for August is set to be released. Consumer confidence is expected to rise modestly from 92.6 in July to 93 in August. Confidence fell notably in July as rising case counts worried consumers; however, we’ve seen evidence that efforts to contain the spread of the virus are paying off and consumer confidence has started to recover. Improving confidence typically supports faster consumer spending growth, so any increase to the index would be a positive development. Still, the index topped out this year at 132.6 in February, so we have a long way back to pre-pandemic confidence levels.
Tuesday will also see the release of July’s new home sales report. New home sales are expected to decline slightly by 0.1 percent, following a 13.8 percent increase in June. New home sales rebounded in June to their highest level in nearly 13 years, so the anticipated decline is not worrisome. New home sales are a smaller and often more volatile portion of overall sales compared with existing home sales. The swift rebound in new home sales in May and June helped support the faster-than-expected rebound in home builder confidence we’ve seen over the past few months. Builders are confident they will be able to sell newly constructed homes, especially in supply-constrained regions.
On Wednesday, the preliminary estimate of July’s durable goods orders report will be released. Durable goods orders are expected to rise by 4 percent during the month, following a strong 7.6 percent rise in June. Reopening efforts in May and June served as a tailwind for business spending in the second quarter, and a continued rebound in July would be encouraging. Core durable goods orders, which strip out the impact of volatile transportation orders, are expected to show solid 1.7 percent growth, after rising by 3.6 percent in June. Core durable goods orders are often used as a proxy for business investment, so a continued rebound in July would be a reassuring sign that businesses were spending despite rising case counts during the month. If estimates prove accurate, the pace of core durable goods orders would be close to pre-pandemic levels, pointing toward a surge in business investment once reopening efforts began.
Thursday will see the release of the second estimate of second-quarter GDP growth. Economists expect the economy to have contracted at an annualized rate of 32.5 percent during the quarter, which is an improvement from the initial forecast for a 32.9 percent annualized contraction. If estimates hold, this report would still represent the worst single quarter for economic growth in modern history, surpassing the 8.4 percent annualized decline we saw in the fourth quarter of 2008. A sharp drop in personal consumption was the primary driver of the quarter’s contraction, as the 34.6 percent annualized decline in consumption previously reported was the largest quarterly decline on record. These figures are certainly concerning, but it’s important to note that this data is almost two months old. Economists anticipate a double-digit rebound in GDP growth in the third quarter that should partially offset the damage created by anti-coronavirus measures in the second quarter.
Thursday will also see the release of the weekly jobless claims report for the week ending August 22. Economists expect to see 1 million initial unemployment claims filed during the week, which would be down modestly from the 1.106 million initial filers the week before. While declining initial claims would certainly be welcome, this result would represent a disappointing increase from the 971,000 initial claims filed in the first week of August. Initial claims have shown a decent recovery since peaking at just more than 6.8 million at the end of March when lockdowns started. The recent pace of initial and continuing unemployment claims remains historically high, however, which indicates the labor market needs a lot of work. We’ll continue to monitor this important weekly release until claims approach more normal levels.
On Friday, July’s personal income and personal spending reports are set to be released. Spending is expected to show solid 1.5 percent growth during the month, following a 5.6 percent surge in June. This would be an encouraging result given the headwinds for consumer spending created by rising case counts and the slowdown or even rollback of reopening efforts in some states throughout the month. If estimates hold, the spending report would be in line with a previously reported 1.5 percent increase in core retail sales in July. Personal income is expected to fall by 0.5 percent in July, following a 1.1 percent decrease in June. Incomes have been volatile due to the one-time $1,200 cash payments distributed in April, which sent the index up by more than 12 percent during the month. Given the lack of recurring stimulus payments, the decline we’ve seen in personal income every month since make sense.
Finally, we’ll finish the week with the second and final reading of the University of Michigan consumer sentiment survey for August. Economists expect to see the index remain unchanged from the preliminary reading of 72.8 released earlier in the month. If estimates hold, this report would represent a modest increase from July’s 72.5 reading and would be in line with the anticipated rise in the Conference Board Consumer Confidence Index during the month. Economists previously forecasted a decline to 72 before the preliminary estimate was released. As such, this result would still be an improvement compared with the start of the month, even if there is no intramonth improvement. Consumer confidence will continue to be a widely monitored economic indicator as the recovery continues, given the importance of consumer attitudes and spending on the overall economy.
That’s it for this week—thanks for reading and stay safe!
