On Wednesday, July’s existing home sales data was released. Sales grew by 2.5 percent during the month, which was in line with economist expectations. Following the 1.7 percent decline in June, this result is solid. It marks the first time in 17 months that existing home sales have grown on a year-over-year basis. Low mortgage rates helped buyers in July, but a lack of affordable housing continues to drive up overall prices, which have risen 4.3 percent year-over-year. The solid housing growth, combined with last week’s much better-than-expected retail sales figures, shows that consumers were willing and able to spend in July, which bodes well for overall third-quarter growth.
The minutes from the Fed’s July 31 meeting were also released on Wednesday. The Fed decided to cut the federal funds rate by 25 basis points, marking the first rate cut in more than a decade. The minutes showed concern from Fed members regarding the slowdown in global trade, low inflation figures, and the negative impact the escalating trade war has had on the economy. Fed Chair Jerome Powell echoed these thoughts in a Friday morning speech. He stated that while the economy is currently doing well, the risks the Fed identified at its July meeting continue to be worrisome and may have worsened in August. Equity markets rose after Powell’s comments, as market participants see increased risks as a justification for an additional rate cut in September. Bond market participants have fully priced in a cut at the Fed’s September meeting.
We ended the week with Friday’s release of July’s new home sales report. New home sales disappointed during the month, falling by 12.8 percent against expectations for a modest 0.2 percent increase. While the headline growth figure was disappointing, the large decline was due in part to an upward revision to June’s new home sales. Despite the decline in July, year-over-year sales growth sits at 4.2 percent, which means there’s no immediate cause for concern. Overall, new home sales make up a much smaller portion of the housing market and tend to be more volatile than existing home sales. So, while this was a disappointing result for new home sales, the overall housing market seems to have had a solid start to the third quarter.
The week will begin with the release of July’s durable good orders, which are set to increase by 1.3 percent following a 1.9 percent gain in June. Orders have been volatile this year, so this projected gain for the second month in a row is welcome. Much of the expected gain is due to increased aircraft orders, given that the core durable goods figure, which strips out transportation orders, is expected to show merely 0.1 percent growth.
On Tuesday, the Conference Board Consumer Confidence Index for August is set to be released. Confidence is expected to fall to 130 from July’s reading of 135.7. Consumer confidence is largely influenced by equity market performance, so it is not a surprise that economists expect August’s market turbulence to negatively affect confidence.
On Friday, July’s personal income and consumer spending reports are set to be released. Income is expected to show 0.3 percent growth during the month, while spending is set for 0.5 percent growth. These projected results are broadly in line with June’s figures and would echo the strong retail sales report in July. Consumer spending remains one of the bright spots in the economy, so another month of solid income and spending growth would continue the strong trends we’ve seen this year.
We’ll finish out the week with the second and final release of the University of Michigan consumer sentiment survey for August. Economists expect the survey to increase from the initial midmonth reading of 92.1 to 92.6 for month-end. Despite the increase, this result would still represent the second-lowest level for the index this year. As with the Conference Board’s index, August’s market volatility is to blame for economists’ lowered expectations.
That’s it for this week—thanks for reading!