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Among last week’s important economic data releases, the focus was on July’s existing home sales, durable goods orders, and personal income and spending reports. In a positive sign for the overall economic recovery, personal income and spending showed continued growth during July. This week will be busy once again, with releases that include a look into consumer and business confidence in August, the August employment report, and the international trade report from July.
Last Week’s News
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 was released. Durable goods orders fell by 0.1 percent during the month, slightly above economist estimates for a 0.3 percent decline. The drop in headline orders was due in large part to a slowdown in volatile aircraft orders. Core durable goods orders, which strip out the impact of transportation orders and are often viewed as a proxy for business investment, increased by a solid 0.7 percent. Calls were for a 0.5 percent increase. This result was a positive signal that businesses continued to invest during the month, in order to meet high levels of consumer demand. This encouraging report showed that the impact of rising medical risks on business confidence and spending appears muted compared with data from the early pandemic. Business spending has been robust since the initial lockdowns were lifted last year. Looking forward, continued business spending is expected to support the ongoing economic recovery.
Thursday saw the release of the initial jobless claims report for the week ending August 21. There were 353,000 initial unemployment claims filed, a result that was slightly higher than the upwardly revised 349,000 initial claims recorded the week before. Despite the modest increase, this report represents the second-fewest initial claims in a week since the start of the pandemic. Heading into August, there was some concerns that rising medical risks would threaten the current labor market recovery. Nonetheless, we’ve continued to see improvement in the weekly initial jobless claims figure throughout the month, in an encouraging sign for the August employment report. Looking forward, the nationwide expiration of enhanced unemployment benefits during the week ending September 4 may drive further improvement in job growth, causing more individuals to return to the labor market.
On Friday, July’s personal income and personal spending reports were released. Both income and spending increased during the month. Income rose by 1.1 percent against forecasts for a 0.3 percent increase, and spending rose by 0.3 percent against forecasts for a 0.4 percent increase. Income has been very volatile throughout the pandemic, as shifting federal stimulus and unemployment payments have led to large monthly swings. For example, the 1.1 percent increase in income in July was due in large part to advance child tax credit payments received during the month. The increased spending seen in July was a welcome sign that consumers continued to spend the additional cash received. As a result, the July report marks five straight months with spending growth. Reopening efforts throughout the country have served as a tailwind for consumer spending, which included increased spending on services in July. Overall, this encouraging report shows that consumers continue to be willing and able to spend despite the rising medical risks.
What to Look Forward To
Tuesday will see the release of the Conference Board Consumer Confidence Index for August. This widely followed measure of consumer sentiment is expected to decline from 129.1 in July to 123 in August. July’s result brought the index back to pre-pandemic levels, marking a new pandemic-era high for consumer confidence. Given that, the anticipated decline in August is understandable. If estimates prove accurate, confidence will remain well above lockdown-induced lows and at levels supporting continued consumer spending growth. Consumer confidence has been resilient this year, compared with data from last spring when initial lockdowns caused sentiment and spending to plummet. The rising medical risks are real, however, and should be monitored for a sustained decline in confidence and spending. A drop in these indicators could threaten the pace of the overall economic recovery as we head into fall.
On Wednesday, the ISM Manufacturing index for August is set to be released. This measure of manufacturer confidence is expected to decline slightly from 59.5 in July to 58.6 in August. This is a diffusion index, where values above 50 indicate expansion, so the anticipated result would signal continued growth for the manufacturing industry. Manufacturing confidence has been supported this year by reopening efforts, high levels of consumer demand, and low levels of business inventory. High input prices continue to serve as a headwind for the industry, however. Tangled global supply chains continue to drive up costs of materials, and, recently, labor shortages have started to drive up employment costs. Despite these headwinds, high levels of demand should continue to serve as a tailwind for manufacturers in the months ahead.
Thursday will see the release of the initial jobless claims report for the week ending August 28. Economists expect to see 346,000 initial unemployment claims filed during the week, in a drop from the 353,000 initial claims filed the week before. If estimates prove accurate, the report would represent a new record low for weekly initial claims since the start of the pandemic. This would be seen as an encouraging sign for the August employment report. We’ve made solid progress this year in getting the number of initial claims down, although work remains to get us back to pre-pandemic levels. In 2019, we averaged roughly 220,000 initial claims per week. The Fed continues to closely monitor the labor market recovery, as a full economic recovery will rely on further improvements for the job market.
Thursday will also see the release of the July international trade balance report. The trade deficit is expected to narrow slightly, from $75.7 billion in June to $74.1 billion in July. If estimates prove accurate, this report would mark the third-largest monthly trade deficit on record, trailing only results from June and March of this year. According to the advanced report on the trade of goods, the exports of goods increased by 1.5 percent in July, while imports fell by 1.4 percent. Part of the decline in imports of goods was due to a slowdown in consumer goods imports during the month, which reflects slowing consumer demand. Looking forward, there is room for more improvement in export growth, as the total level of exports remains below pre-pandemic levels. Given the uneven nature of the global economic recovery, it may take some time to get export growth back to earlier highs. Over the long term, however, rising global demand for U.S. goods should drive further improvements.
On Friday, the August employment report will be released. Economists expect to see 750,000 jobs added during the month, in a step down from the 943,000 jobs added in July. Still, this result would represent a notable increase in the pace of hiring compared with data from earlier in the year. Reopening efforts supported faster hiring growth in June and July. If estimates for August prove accurate, they would signal strongly that the recovery remains on track despite rising coronavirus case counts. The underlying data is also expected to show continued improvement, with the unemployment rate set to drop from 5.4 percent to 5.2 percent. Average hourly earnings are expected to increase by 0.3 percent in August, reflecting the continued high levels of demand from businesses for additional employees. Overall, if estimates prove accurate, this report would be a sign that the labor market recovery continued in earnest during the month. This may provide additional support for the Fed’s potential plans to taper asset purchases later this year.
We’ll finish the week with Friday’s release of the ISM Services index for August. This gauge of service sector confidence is expected to decline from 64.1 in July to 62 in August. This is another diffusion index, where values above 50 indicate growth, so the anticipated result would signal continued expansion for the service sector. July’s result marked a record high for the index, so a modest pullback would be understandable, especially when the rising case counts and increased local restrictions on businesses are taken into account. Service sector confidence has been supported throughout the course of the year by reopening efforts allowing businesses to ease off on pandemic restrictions. But, with some areas of the country starting to reimpose anti-pandemic measures, we may see service sector confidence face new headwinds. The service sector accounts for the majority of economic activity in the country, so this release will continue to be widely monitored.
That’s it for this week—thanks for reading!
