Print
There were a number of important economic data releases last week, with a focus on housing, the July retail sales report, and the weekly initial jobless claims report. Initial unemployment claims set a new pandemic-era low during the second week of August, in an encouraging sign for the ongoing labor market recovery. This will be another busy week for updates, with July’s existing home sales, durable goods orders, and personal spending and income reports serving as highlights.
Last Week’s News
On Tuesday, the July retail sales report was released. Sales fell by more than expected during the month, with headline sales declining by 1.1 percent against forecasts for a 0.3 percent drop. This result follows an upwardly revised 0.7 percent increase in sales in June. The Amazon Prime Day event in June contributed to the month’s increased sales, as well as to July’s slowdown, during which non-store sales fell by 3.1 percent. A 3.9 percent reduction in auto sales in July also contributed to the decline in headline sales. But even core retail sales came in below expectations during the month. Core retail sales, which strip out the impact of volatile auto and gas sales, fell by 0.7 percent in July, against calls for a more modest 0.1 percent drop. Despite the miss against expectations, the July report showed some silver linings. Restaurant spending increased during the month, indicating that reopening efforts continued to drive improvements for service sector spending.
Tuesday also saw the release of the National Association of Home Builders Housing Market Index for August. This measure of home builder confidence declined by more than expected during the month, dropping from 80 to 75 against calls for no change. Despite the miss against expectations, this is a diffusion index, where values above 50 indicate growth. Accordingly, the index shows the housing market continued to expand in August, just at a slightly slower pace. Given the August result, however, the index sits at its lowest level since July 2020, highlighting the challenges home builders are currently facing. Tangled supply chains continue to serve as an obstacle for builders, even though lumber prices have retreated from recent highs. Home builders have also had to contend with shortages of skilled labor and lots to build on. Looking forward, the supply chain challenges are expected to moderate. Still, for the time being, these bottlenecks are a headwind for new home construction.
Speaking of new home construction, Wednesday saw the release of the July building permits and housing starts reports. The reports came in mixed, as starts fell by 7 percent while permits increased by 2.6 percent. Economist forecasts had called for a 2.6 percent decline for starts and a 1 percent increase for permits in July. These measures of new home construction can be volatile on a month-to-month basis. Still, both measures rebounded swiftly following the end of initial lockdowns last year and remain above the pre-pandemic trend. Rising costs and material shortages have slowed the pace of construction over the past few months, but high home buyer demand continues to support healthy levels of new home construction. New home construction has also been supported by a lack of available homes for sale, which gives home builders confidence that newly built homes will sell quickly. Overall, the recent slowdown in the pace of construction is worth monitoring. But if the pace of new home construction stays near current levels, it would signal continued growth for this important sector of the economy.
Wednesday also saw the release of the FOMC meeting minutes from the Fed’s recent July meeting. The Fed cut interest rates to virtually zero last March due to the pandemic, and economists expect rates to remain there until at least 2023. The Fed did not make any major changes to monetary policy at this meeting, but the minutes showed further discussion surrounding the Fed’s asset purchase program. Currently, the Fed is purchasing $120 billion a month in Treasury and mortgage-backed securities. Economists have been closely monitoring the central bank for months in order to learn how and when the Fed plans on tapering these purchases. The minutes showed that most FOMC participants believe it may be appropriate to start tapering purchases at some point this year. This is a clear signal that the central bank may taper purchases in the foreseeable future. Looking forward, the Fed’s September meeting will be closely monitored for further guidance on the timing and pace of the anticipated tapering of asset purchases.
We finished the week with Thursday’s release of the initial jobless claims report for the week ending August 14. The number of initial unemployment claims fell by more than expected, dropping from an upwardly revised 377,000 claims for the previous week to 348,000. The forecasts were for a more modest decline to 364,000. This result marks the fewest initial jobless claims in a week since the start of the pandemic. It was an encouraging indication that the labor market recovery continued to pick up steam in early August despite rising medical risks. The labor market recovery has accelerated over the past few months, as businesses have strived to meet high levels of pent-up consumer demand. The continued improvement for the job market is an encouraging sign for the overall economic recovery. It may open the door for an earlier-than-anticipated announcement from the Fed regarding tapering its asset purchase program.
What to Look Forward To
Monday saw the release of the July existing home sales report. Sales of existing homes came in above expectations, increasing by 2 percent during the month against calls for a 0.5 percent decline. This result brought the pace of existing home sales to its highest level in four months. Over the past year, existing home sales have been supported by record low mortgage rates and shifting home buyer preferences for more space due to the pandemic. Nonetheless, a lack of supply has been a headwind for sales throughout 2021. The strong July result coincided with an increase in the supply of homes for sale. The number of existing homes for sale increased by 7.3 percent during the month to hit its highest level since October 2020. This is an encouraging signal that the housing market is starting to normalize, following a surge in sales growth over the past year that led to reduced supply and rising prices. Looking forward, the supply of homes for sale remains relatively low on a historical basis. This situation is expected to hamper overall sales growth. If sales remain near the current pace, however, they would signal healthy levels of home buyer demand.
On Wednesday, the preliminary estimate for the July durable goods orders report is set to be released. Durable goods orders are expected to decline by 0.2 percent during the month, following a 0.9 percent increase in June. Core durable goods orders, which strip out the impact of volatile transportation orders, are expected to increase by 0.4 percent, following a 0.5 percent increase in June. Core durable goods orders are often viewed as a proxy for business investment, so continued growth would be a positive signal that businesses continued to spend in July despite rising health risks. Both service sector and manufacturer confidence remained in healthy expansionary territory in July, which should support business spending during the month. Throughout much of the economic recovery, business spending has been steady. With this report, however, total durable goods orders have rebounded past pre-pandemic levels, signaling the potential for slower growth in the months ahead.
Thursday will see the release of the initial jobless claims report for the week ending August 21. Economists expect to see 350,000 initial jobless claims filed during the week, in a modest increase from the 348,000 initial claims filed the week before. Still, despite the anticipated increase, this report would represent the second-fewest initial claims in a week since the start of the pandemic. If estimates prove accurate, this encouraging result would indicate that rising health risks did not derail the ongoing labor market recovery. Ultimately, the pace of the overall economic recovery is expected to remain largely dependent on the health of the labor market. Accordingly, continued good news on the jobs front would be a welcome signal regarding the overall economy.
On Friday, July’s personal income and personal spending reports are set to be released. Both income and spending are expected to show growth during the month. Economist forecasts call for a 0.2 percent and 0.4 percent increase in income and spending, respectively. June’s report showed that consumer spending continued to benefit from reopening efforts, with personal spending rising by 1 percent on the back of additional service sector purchases. While retail sales fell by more than expected in July, the increased spending on services was a silver lining in the retail sales report. The personal spending report is expected to show a similar increase in service spending. Personal income has been quite volatile on a monthly basis throughout the pandemic, as shifting federal stimulus payments have caused large swings. With that said, a modest increase in July’s personal income would mark two consecutive months with rising incomes following two months of declines. The July employment report showed that wage growth has started to accelerate due to labor shortages. Looking forward, continued improvements for personal income are expected, which may support continued spending growth.
That’s it for this week—thanks for reading!
