What I Saw Last Week
U.S. New Home Sales rose 6.7% to a seasonally adjusted annual rate of 689,000 in May – I had forecast the number to come in at 666,000 – from a downwardly revised 646,000 (from 662,000) in April.
Sales rose 17.9% in the South; were static in the Midwest, dropped 8.7% in the West and were 10% lower in the Northeast. Based on the current sales pace, the inventory of new homes for sale fell to a 5.2-months’ supply, versus 5.5 months in April and 5.4 months in the year-ago period.
The median sales price decreased 3.3% year-over-year to $313,000. The average sales price decreased 2.6% to $378,400.
The takeaway from the report is that there wasn’t any growth in new home sales outside the South region. That is the largest region for new home sales, though, and where there is a concentration of lower-priced housing markets, which helps explain the year-over-year drop in median and average sale prices.
Case Shiller Index data for April showed the 20-city index up by 6.6%, marginally below my forecast for 6.8%.
While the price gains lost a bit of momentum last month, prices continue to grow faster than both incomes and inflation with half of the housing markets in the country now above their 2006 peaks.
The biggest price gains continue to be concentrated in the West with Seattle seeing a 13.1% annual gain in prices in April compared to a year earlier; Las Vegas prices rose 12.7% and San Francisco saw an 10.9% increase.
The takeaway from this report is that the favorable economy and moderate mortgage rates both continue to support gains in housing.
Consumer Confidence in June dropped to 126.4 from an upwardly revised 128.8 in May – I had forecast a smaller drop to 127.1.
The Present Situation Index checked in at 161.1 versus 161.2 in May while the Expectations Index dropped from 107.2 to 103.2.
The takeaway from the report is that the downturn was driven by a downshift in the Expectations Index, which suggests, according to the Conference Board, that consumers don’t anticipate the economy gaining much momentum in the coming months.
The NAR Pending Home Sales Index for May dropped 0.5% as would be home buyers pulled back from expensive and competitive housing markets. I had anticipated a 0.8% increase.
Sales have now fallen on an annual basis for five straight months. Pending home sales are a forward indicator of closed sales in June and July.
Realtors in most of the country continue to describe their markets as highly competitive and fast moving, but without enough new and existing inventory for sale, activity has essentially stalled.
Regionally, pending home sales rose 2% in the Northeast; were up by 2.9% in the Midwest; rose 0.6% in the West abut were down by 3.5% in the South. All areas were either static pr below levels seen a year ago.
Sales may not see gains in June either, given the drop in applications for mortgages. Mortgage rates haven’t moved much this month, but mortgage applications to purchase a home fell 6% last week compared with the previous week and were just 1% higher than the same week one year ago.
The third, and final, measure of U.S. GDP the first quarter of this year was downwardly revised to 2.0% from the previous estimate of 2.2% – I had expected to see no revision.
The drop was a function of downward revisions to private inventory investment and personal consumption expenditures.
Personal consumption expenditures increased 0.9% versus the second estimate of 1.0% while the change in private inventories subtracted 0.01 percentage points from GDP growth, versus the second estimate, which showed it adding 0.13 percentage points.
Income & Spending both rose in April with incomes up by 0.4% and spending up by a modest 0.2%; I had expected to see both incomes and spending up by 0.4%.
The increase in personal income was led by a 0.3% increase in wages and salaries and a 1.5% jump in personal dividend income.
In May, the savings rate increased to 3.2%, up from 3.0% in April. Nevertheless, saving remains relatively low from a historical viewpoint. As shown in the graph below, the savings rate has been on a downward path since 2016, as rising consumption was contributing to fueling economic growth. The steady growth of disposable income also boosts the future income expectations, which leads to a higher current consumption and lower savings.
The takeaway from the report is twofold: Firstly, real PCE (Personal Consumption Expenditures) was flat, which is likely to prompt some downward revisions to Q2 GDP forecasts and secondly, the price indexes are moving in the direction anticipated by the Fed, which means the Fed is also likely to keep moving the fed funds rate higher as anticipated.
As I had expected, the final Consumer Sentiment number for June was revised down to 98.2 but the drop was more than my forecast for 99.0 (from 99.3).
The Current Economic Conditions Index was 116.5, down from the preliminary reading of 117.9 while the Index of Consumer Expectations was 86.3, down from the preliminary reading of 87.4.
The takeaway from the report is that the downshift from the preliminary reading was driven primarily by tariff concerns, yet favorable assessments of jobs and incomes were a mitigating influence that left the overall index little changed from the prior month.
What to Watch for This Week
U.S. Construction Spending rose by 1.8% in April on the back of increased private construction spending. I am looking for the May number show a further increase of 0.6%.
Non-Farm Payrolls in the U.S. rose by 223,000 in May and I expect to see the June figure show the country having added an additional 195,000 new jobs.
The U.S. Unemployment Rate in May was measured at 3.8% and I do not expect to see any change when the June numbers are released.