What I Saw Last Week

The NAR Pending Home Sales Index for June rose by 1.5% to 110.2 from an upwardly revised 108.6 (from 108.5) – I had forecast a 1.1% increase.

Pending Index

In June, only the Midwest saw a decline, with pending sales down 0.5% for the month and 3.4% for the year. Pending sales in the Northeast edged up 0.7% during June and are 2.9% higher compared to a year ago. In the South, pending sales rose 2.1% and stand 2.6% higher compared to last June. And in the West, sales rose 2.9% in June, but are 1.1% lower than a year ago.

The U.S. housing market is increasingly confronted with a shortage of properties listed for sale which can be attributed to a number of reasons. Investors that bought foreclosed houses during the downturn are now renting them at a tidy profit, while many existing homeowners say they cannot afford the down payment to sell their house and buy a more expensive property.  additionally, construction costs are holding many builders back from significantly adding to supply.

As a consequence, prices are climbing faster than wages while number of homes listed for sale has plunged. All of this limits just how much sales volumes can advance.

Income & Spending in June was a mixed bag with incomes unchanged but spending up by 0.1% (I had forecast incomes to have risen by 0.3% but spending exactly matched my forecast).


A contraction in personal dividend income (-3.0%) and personal interest income (-1.0%) were key drags on total income in June. Their negative impact was offset to a large extent, however, by a 0.4% increase in wages and salaries.

Real disposable personal income was up 1.4% year-over-year (vs. 1.4% in May) while real PCE (Personal Consumption Expenditures) was up 2.4% (vs. 2.7%) in May.  The personal savings rate as a percentage of disposable income dipped to 3.8% from 3.9% in May as a result of flat income and a slight increase in spending.

The takeaway from the report is that the inflation data supported the market’s preconception that the Fed is unlikely to raise the target range for the fed funds rate at its September meeting.

U.S. Construction Spending declined 1.3% month-over-month in June (I had forecast +0.5%) after an upwardly revised 0.3% increase (from 0.0%) for May.

Con Spend

The June decline was driven by a 5.3% decrease in total public construction spending and a 0.1% decrease in total private construction spending.

On the public side, non-residential spending dropped 5.4%, with every component category seeing a decline in spending. Highway and street spending was down 6.6% while educational spending fell 5.5%.  On the private side, residential spending declined 0.2% with new multi-family spending down 2.9%. The decline in residential spending was offset slightly by a 0.1% increase in non-residential spending. Altogether, residential spending decreased 0.3% in June while non-residential spending fell 2.0%.

On a year-over-year basis, total construction spending is up just 1.6%, with public construction spending down 9.5% and private construction spending up 5.3%.

The takeaway from the report is that the 1.6% year-over-year growth rate in total construction spending is the second-lowest growth rate since 2011.

Non-Farm Payrolls continue to show a trend of strong job growth but lackluster wage growth remains an issue.


July non-farm payrolls rose by 209,000 (I Had forecast a more modest 181,000) with the average over the past 3-months coming in at a very respectable 195,000. Of note is the upward revisions to the June numbers (231,000 from 222,000) but the May figure was lowered to 145,000 from 152,000.

July private sector payrolls increased by 205,000 with the June figure revised to 194,000 from 187,000 and the May number revised to 153,000 from 159,000.

Monthly employment data, released by the BLS Establishment Survey, showed that construction employment rose by 6,000 over the month.

Residential construction employment is now at 2.7 million workers, broken down as 767,000 builders and 1.93 million residential specialty trade contractors. The 6-month moving average of job gains in residential construction is now was close to 3,000 a month and, over the past 12- months home builders and remodelers have added 118,300 jobs. Since the low point of industry employment following the Great Recession, residential construction has gained 717,200 positions but is still some time away from reaching full employment in the housing sector.

The key takeaway from the report is that it fit that sweet spot yet again for the stock market where job growth was strong but wage growth was not.  My assumption, therefore, is that the Fed will continue to wait on its next rate hike.

With the increase in jobs, the Unemployment Rate met my forecast and dropped back down to 4.3%.

U RAte

Persons unemployed for 27 weeks or more accounted for 25.9% of the unemployed versus 24.3% in June. The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, held steady at 8.6% while the labor force participation rate increased to 62.9% in July from 62.8% in June.

What to Watch for This Week

Consumer Credit rose by $18.4B in May and I am expecting to see the June figure to pull back a little to $16.2B.

Inflation, as measured by the Consumer Price Index, has remained benign but we are likely to see a modest increase when the data is released on Friday.  Look for the total and core rates to have risen by 0.2%.

As a side note, I am heading out of the country for my annual kayaking adventure in Northern British Columbia this week.  As such, I am afraid that you won’t see another forecast until my return on August 21st!