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Brad here. Today's post is from Sam Millette, a fixed income analyst on our Investment Management and Research team. Over to you, Sam.
Last week, several important economic data points were released, covering major components of the economy. Much of this news came in better than expected, and the overall economic picture suggests accelerated growth in the second half of the year.
Last week’s news
On Tuesday, July’s retail sales were released. Headline sales growth came in at 0.6 percent, against expectations of a more modest increase of 0.4 percent. This encouraging result was bolstered by positive revisions to sales data from May and June and by Amazon’s annual Prime Day—giving the company its single biggest sales day in Amazon history. With the consistently high levels of consumer confidence this year, positive momentum in retail sales may help mitigate concerns of a disconnect between confidence and spending data.
Also on Tuesday, the National Association of Home Builders survey surprised to the upside, jumping from 64 to 68. Expectations were for a modest increase to 65. This home builder confidence measure has remained at elevated levels throughout the year, signaling that the housing market remains largely healthy. On the other hand, both housing starts and building permits declined by more than expected in July. While these declines were disappointing, the high levels of home builder confidence and low levels of supply indicate that these measures should return to growth in the near future.
The Federal Open Market Committee released its July meeting minutes on Wednesday and kept interest rates unchanged. Some members expressed concern about inflation figures coming in below the Fed’s stated goal of 2 percent, but most members believed that weakness in inflation was driven by transitory factors. In addition, the committee is widely expected to begin a balance sheet reduction plan in September, prompted by some members’ comments advocating for a start-date announcement. If this does happen, it would be considered a vote of confidence in the economy.
On Thursday, industrial production grew by slightly less than expected. It gained 0.2 percent in July against expectations for a 0.3-percent increase. The miss was due in large part to declines in automobile manufacturing, as more factories shut down in July to retool than was anticipated. Given the strength of this measure in the second quarter, however, moderating growth is understandable.
The week wrapped up with the release of the University of Michigan Consumer Sentiment Index on Friday. This confidence survey, which reached a post-recession low of 93.4 in June, increased to 97.6 against expectations of a moderate increase to 94. This rebound brings the measure back in line with previous highs and suggests that consumption growth should remain strong in the second half of the year.
The week ahead
This will be relatively quiet week on the economic news front. The few major releases will relate to housing sales and durable goods orders.
July’s new and existing home sales data will be released on Wednesday and Thursday of this week. New home sales are expected to remain unchanged at 610,000, as supply remains constrained. While this may not seem like an attention-grabbing growth figure, this level actually represents the fastest pace of new home sales since recording began. Existing home sales are expected to bounce back slightly from declines in June, although supply remains constrained here as well. It currently sits at its lowest level in more than 21 years.
Durable goods orders for July will be released on Friday. The headline figure is expected to decrease by 5.8 percent following a surprise 6.4-percent increase in June. This decline can be attributed to volatile airplane sales; Boeing received 184 airplane orders in June and only 22 in July. The core figure, which excludes airplane sales, is expected to notch a healthy gain of 0.5 percent for the month. This core reading is more indicative of overall business confidence, and a positive result would be a boon for business growth.
Have a great week!
