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Last week gave us another look at the housing market, with reports on sales of existing and new homes. Also, the durable goods orders provided a window into industry and business confidence, while the first estimate of GDP for the second quarter revealed the growth of the economy as a whole. Overall, the news was mixed but positive.
Last week’s news
Existing home sales, reported on Monday, dropped from 5.62 million in May to 5.52 million in June. Expectations were for sales to remain steady, but given the lack of available inventory, there was certainly downside risk—which seems to have come through. As the decline was likely due to supply issues rather than lack of demand, concerns about the shortfall should be limited.
On Wednesday, new home sales for June came in at 610,00, slightly below expectations for 615,000. In addition, May’s number was revised down from 610,000 to 605,000. Despite the shortfall, the new home market remains healthy. The longer-term trend continues to be positive, with both the 6- and 12-month averages at their highest levels since mid-2007. Plus, sales are up 9.1 percent over the prior year.
Consumer confidence, on the other hand, did surprisingly well. On Tuesday, the Conference Board survey reported an increase to 121.1 in July from 118.9 in June, which takes the index to the second-highest level since December 2000. Both current confidence and future expectations improved. Moving forward, continued high levels of consumer confidence should remain as a positive force for the economy.
Released on Thursday, durable goods orders were even stronger than expected. The headline number, which includes commercial aircraft, rose from a 0.8-percent decline in May to a 6.5-percent increase in June on strong aircraft orders from Boeing. But the core orders index, which excludes transport, grew by less than expected; we saw a 0.2-percent gain in June, down from 0.3 percent in May, and well below expectations of a gain of 0.5 percent. This was offset, however, by an upward revision of the May gain to 0.6 percent, suggesting overall growth remains healthy. This survey continues to be a good sign for the economy.
Finally, the first estimate of economic growth for the second quarter was released on Friday. GDP growth jumped to 2.6 percent. This was well above the 1.4 percent for the first quarter, with the gain coming from faster growth in consumer and government spending and despite some apparent weakness in business investment. The data is consistent with the pattern we have seen in past years—a slow first quarter followed by faster growth later in the year—and suggests that the recovery continues and economic conditions remain solid.
What to look forward to
We will see a wide range of economic news this week, including consumer income and spending; the state of business confidence in both the manufacturing and service sectors; the international trade report; and, most important, the July jobs report.
Personal income, released on Tuesday, is expected to show strong growth of 0.4 percent in June, the same as in May. Continued job and wage growth have been pushing incomes up. Personal spending, on the other hand, is expected to show growth of just 0.1 percent in June, the same as in May. Despite positive income growth, ongoing weakness in spending growth suggests that the economy may remain steady in the second half of the year, rather than accelerate.
Also on Tuesday, the Institute of Supply Management (ISM) will release its manufacturing survey, which is expected to drop from 57.8 in June to 56.2 in July. This is a diffusion survey, where values over 50 indicate expansion. June’s figure was the highest in nearly three years, so even with a decline, manufacturing will remain at a healthy level. Faster global growth and a weaker dollar have supported U.S. manufacturing, so there may be some upside here.
On Thursday, the ISM will release the nonmanufacturing, or service sector, survey. This survey is also expected to show a small decline—from 57.4 to 56.8—although this too would still be a healthy level. Although we have seen weakness in retail sales, and some surveys have pulled back a bit, activity picked up in the second quarter overall, and the expected result would be positive for the economy.
On Friday, the International Trade report is expected to show a small narrowing of the trade deficit, from $46.5 billion to $45.5 billion. Strengthening exports have benefited the goods trade deficit, while the service trade balance has remained roughly constant. A lower deficit is better for U.S. economic growth, so any improvement would be constructive.
The highlight of the week will be Friday’s employment report. It is expected to show job growth of 183,000 in July, down from 222,000 in June. There is upside risk here, as jobless claims remain quite low, and temporary help growth has been strong. The unemployment rate is expected to drop from 4.4 percent to 4.3 percent. Meanwhile, wage growth may pick up from 0.2 percent to 0.3 percent while the average workweek remains constant. This will be a strong report, and very positive for the economy, if it comes in as expected.
Have a great week!
