Last week saw a number of important economic data releases, with a focus on the housing market. Housing starts increased by more than expected in June, hitting a three-month high despite rising costs for home builders. This will be another busy week of economic updates, with reports scheduled that will touch on business spending, consumer confidence, the Fed’s July meeting, and second-quarter GDP growth.
Last Week’s News
Monday saw the release of the National Association of Home Builders Housing Market Index for July. Home builder confidence slipped slightly during the month. The index fell from 81 in June to 80 in July, against calls for an increase to 82. This report marks two consecutive months with declining home builder confidence, although the index remains above pre-pandemic levels. In addition, this is a diffusion index, where values above 50 indicate expansion. So, this report signals that home builders have continued to build in earnest. The housing market has benefited from record-low mortgage rates and high levels of prospective home buyer demand ever since initial lockdowns were lifted last year. Nonetheless, rising material and labor costs have recently started to weigh on home builder sentiment. Despite the headwinds created by rising construction costs, high levels of prospective home buyer demand and low inventory of homes for sale should support healthy levels of home builder confidence and new home construction in the months ahead.
On Tuesday, the June building permits and housing starts reports were released. These measures of new home construction came in mixed for the month. Housing starts rose by 6.3 percent, against calls for a more modest 1.2 percent increase. But building permits declined by 5.1 percent, which was below expectations for a 0.7 percent increase. The better-than-expected result for housing starts brought the pace of new home construction to its highest level in three months. Home builders have ramped up construction over the course of the past year due to a lack of supply of homes for sale and high levels of home buyer demand. The high levels of buyer demand have been supported by record-low mortgage rates and shifting home buyer preference due to the pandemic. The continued growth in June, despite rising costs for builders, is a positive development for the overall housing market, as lack of supply and rising prices have served as headwinds for faster sales. Looking forward, high levels of home builder confidence and a backlog of homes set to be built should continue to support additional new home construction in the months ahead.
On Thursday, the weekly initial jobless claims report for the week ending July 17 was released. The report showed an unexpected increase in initial unemployment claims during the week. Claims increased from an upwardly revised 368,000 to 419,000, against calls for a decline to 350,000. This unexpected increase could have been partially driven by concerns about the Delta variant, although initial claims can be quite volatile on a week-to-week basis. Despite the increase in claims during the week, the four-week moving average for initial claims remained largely unchanged, so it’s too soon to draw any major conclusions about the health of the labor market recovery based off this one report. We’ve seen the number of initial claims decline notably throughout the course of the year, driven by improvements on the public health front and nationwide reopening efforts. With that being said, next week’s update will be widely monitored to see if this increase was temporary or the start of a new upward trend for claims.
We finished the week with Thursday’s release of the June existing home sales report. Existing home sales increased by 1.4 percent during the month, which was slightly lower than economist estimates for a 1.7 percent increase. The pace of single-family home sales hit a three-month high in June, driven by strong sales growth in the Northeast and Midwest. This marks the first increase in existing home sales in five months and signals continued high levels of home buyer demand. The increase in June kept the pace of existing home sales above pre-pandemic levels, but lack of supply and rising prices have negatively affected overall sales growth over the past few months. The report showed that the average price for a home was up 23.4 percent on a year-over-year basis, while the amount of existing homes for sale was down by 18.8 percent. Given the constraints on the supply side, the growth in June is an encouraging sign that home buyer demand remains strong and continues to drive the housing market growth that we’ve seen since the start of the pandemic.
What to Look Forward To
On Tuesday, the preliminary estimate of the June durable goods orders report is set to be released. Durable goods orders are expected to increase by 2.1 percent during the month, following a 2.3 percent increase in May. Core durable goods orders, which strip out the impact of volatile transportation orders, are expected to increase by 0.8 percent during the month. If estimates hold, this would mark four straight months with core durable goods orders growth, which would be a good sign for business spending and investment in the second quarter. Businesses have ramped up spending ever since the end of initial lockdowns last year, and durable goods orders have surpassed pre-pandemic levels. Business confidence has remained well above pre-pandemic levels for most of the year, which has helped support increased spending. Given the continued reopening efforts and high levels of business confidence, further growth for durable goods orders is expected in the months ahead, as long as the economic recovery continues.
Tuesday will also see the release of the Conference Board Consumer Confidence Index for July. Economists expect to see the index decline from 127.3 in June to 124.3 in July, which would mirror a similar decline in the University of Michigan consumer sentiment survey that was released earlier in the month. Consumers cited rising prices for big-ticket items (e.g., houses and cars) as the primary cause for the decline in sentiment that we saw in the University of Michigan survey. While confidence has rebounded well past the pandemic-era lows that we saw during initial lockdowns last year, concerns about inflation and the Delta variant could weigh on sentiment in the short term. Historically, higher levels of consumer confidence have helped support faster consumer spending growth. As such, the anticipated decline in confidence during the month will be worth monitoring, especially if we continue to see further declines in the months ahead.
On Wednesday, the FOMC rate decision from the Fed’s July meeting is set to be released. The Fed cut rates to virtually zero last year in response to the pandemic, and economists do not anticipate any rate changes until 2023 at the earliest. Given the lack of anticipated changes to interest rates, the focus will largely be on the Fed’s press release, as well as Fed Chair Jerome Powell’s post-meeting press conference. The Fed is currently purchasing $120 billion in Treasury and mortgage-backed securities per month, and economists will be looking for any hints about the central bank’s plan to potentially start tapering these asset purchases. So far, the Fed has not set any timetable on when it may start to taper purchases. But given the fact that a tapering could affect markets and cause short-term volatility, any mention of changes to the asset-buying program will be closely examined. Ultimately, the Fed is expected to keep policy supportive at this meeting. Any surprises could negatively affect markets; therefore, this will be a widely monitored release.
On Thursday, the advance report of annualized GDP growth in the second quarter is set to be released. Economists are anticipating that the economy grew at an annualized rate of 8.4 percent during the quarter, which would be a step up from the 6.4 percent annualized growth rate that we saw in the first quarter. Personal consumption is expected to be the major driver of overall growth during the second quarter, with economists calling for a 10.5 percent annualized increase in consumption during the quarter. If estimates hold, this would actually be a slight decline in the pace of personal consumption growth from the first quarter, but it would still represent a very strong quarter for consumption growth on a historical basis. Personal consumption growth was supported by the most recent federal stimulus bill that provided checks to individuals near the start of the quarter. Overall, this report is expected to show that the economic recovery remained largely on track to finish out the first half of the year.
Thursday will also see the release of the initial jobless claims report for the week ending July 24. Economists expect to see the number of initial unemployment claims decline from 419,000 to 380,000 during the week. Given the surprising increase in initial claims the week before, this will be a widely monitored report, giving economists a better idea into whether the recent rise in claims was just noise in the data or the start of a new upward trend driven by rising health risks. While this data can be volatile on a week-to-week basis, the trend has largely been downward throughout the course of the year. If the estimates hold, it would be an encouraging sign that the labor market recovery remains on track. Given the importance of the labor market recovery on the overall economic recovery, a return to declining initial claims during the week would be a positive signal for the health of the overall economy.
We’ll finish the week with Friday’s release of the personal income and personal spending reports for June. Spending is expected to increase by 0.6 percent during the month, following a flat result in May. Spending growth has been relatively strong throughout the year, as reopening efforts and federal stimulus payments have helped support increased spending growth. Personal income is expected to decline by 0.6 percent during the month, following a 2 percent drop in May. Personal income has been very volatile on a month-to-month basis throughout the pandemic and recovery, as shifting federal stimulus payments have led to large monthly swings in income growth. This was highlighted in March, when another round of federal stimulus checks caused personal income to increase by a record 20.9 percent during the month. Given the high levels of consumer saving that we’ve seen throughout the pandemic and the continued economic recovery, economists expect to see continued spending growth in the months ahead, even if incomes remain volatile on a month-to-month basis.
That’s it for this week—thanks for reading!