Last week was packed with economic updates that covered a wide portion of the economy. For the most part, the news came in better than expected, with increases in consumer confidence and spending highlighting the data. This will be a quieter week, with a focus on housing and the first report of second-quarter GDP growth.
Last week’s news
The week began with last Tuesday’s release of retail sales for June, which came in better than expected. Economists had expected to see modest month-over-month growth of 0.2 percent, but consumers surprised to the upside, pushing growth to 0.4 percent for the month. This marks the fourth straight month of strong retail sales growth, which bodes well for overall economic growth in the second quarter.
Also on Tuesday, June’s industrial production report was released. Production was unchanged for the month, against expectations for modest growth of 0.1 percent. This weakness appears to be due to an unusually warm month that caused utility output to drop more than expected. Meanwhile, manufacturing output rose 0.4 percent, which is the best monthly result since December. The bump in output is not likely to last, however, given the slowdown in global manufacturing and low confidence levels for manufacturers.
Tuesday’s final release, the National Association of Home Builders index, ticked up slightly, from 64 to 65. Economists had expected this measure of homebuilder confidence to remain flat for July, but rising sentiment in the West and South was more than enough to offset declines in the Northeast and Midwest. Low timber costs also supported higher homebuilder confidence, while a lack of prospective buyers had the opposite effect.
Despite this rise in confidence, homebuilders were still hesitant to break ground on new housing, as evidenced by Wednesday’s release of housing starts. The report showed a decline of 0.9 percent for June. Building permits, which are another indicator of homebuilders’ willingness to build more houses, declined 6.1 percent during the month. Permits had increased in May for the first time in seven months, so these declines were disappointing.
Finally, the week ended with the release of the University of Michigan consumer confidence survey, which increased from 98.2 in June to 98.4 in July. This uptick in confidence was due in large part to the continued positive performance of the stock market and the solid employment situation. High consumer confidence is one of the major factors that drives consumer spending, so sustained high confidence levels are a solid tailwind as we move into the second half of the year.
What to look forward to
On Tuesday, June’s existing home sales data is set to be released. Sales are expected to remain flat for the month, despite a surge in mortgage applications in May. Wednesday will see the release of June’s new home sales data, which is expected to show solid 3.5 percent monthly growth. Given the decline in rates this year and the corresponding increase in mortgage applications, faster growth in housing sales during the summer would be very welcome.
On Thursday, we will receive June’s durable goods orders data. It is expected to show headline orders increasing by 0.8 percent for the month, following a 1.3 percent decline in May. May’s decline was due in large part to a drop in orders for Boeing, following the grounding of the 737 MAX airplane. The core figure, which excludes the impact of volatile transportation orders, is expected to show steady growth of 0.2 percent following 0.4 percent growth in May.
On Friday, we will receive the first estimate of second-quarter gross domestic product growth. It is expected to come in at an annualized rate of 1.8 percent for the quarter, down from the 3.1 percent annualized growth rate in the first quarter. This result would be due primarily to declining business inventories and a drop in net trade. These two factors accounted for 1.7 percent of the growth in the first quarter and are expected to drag down growth by 1.9 percent in the second quarter. On a more positive note, consumer spending is expected to be a major source of growth for the second quarter, as consumers were both willing and able to spend more in the second quarter than in the first.
That’s it for this week—thanks for reading!