What I Saw Last Week
Following the May increase in existing inventory, the NAR Pending Home Sales Index rose 0.9% in June to 106.9 – I had forecast a more modest increase of 0.2%.
The PHSI increased slightly in all four regions, ranging from 1.4% in the Northeast to 0.5% in the Midwest. Year-over-year, the PHSI remained down, ranging from 0.3% in the South to 5.6% in the West.
Based on the June increase in the inventory of homes for sale, NAR suggested the possibility that the worst of the supply crunch has passed. Despite the 5.3% decline in new home sales in June, builder confidence stayed at a healthy level in July. The accelerating economic growth in the second quarter of 2018 fueled the job market, and the demand for new residential construction will continue to grow.
Income & Spending data for June showed both rising with incomes matching my forecast for a 0.4% increase and spending also rising by 0.4% which was a little weaker than my forecast for a 0.5% increase.
The uptick in personal income in June was fueled by a 0.4% increase in wages and salaries and a 1.2% jump in personal dividend income.
This report contained comprehensive revisions, which included a marked upward adjustment in the personal savings rate for the years 2013-2017. The personal savings rate as a percentage of disposable income in June held steady at 6.8%.
The key takeaway from the report is that it didn’t produce any real surprises. That means it is the type of report that should keep the Federal Reserve inclined to think that it can continue to raise interest rates.
The Case Shiller Index for May showed the 20-City Index exactly matching my forecast for an annual increase of 6.5%.
In May, the annual growth rates of the 20 metro areas ranged from 3.1% to 13.6%. Among the 20 metro areas, Seattle, Las Vegas and San Francisco reported the highest annual growth rates with Seattle leading the way with a 13.6% increase, followed by Las Vegas with a 12.6% increase and San Francisco up 10.9%. Nine of the 20 metro areas exceeded the 20-City average of 6.5% in May.
Home prices continue to rack up gains two to three times greater than the inflation rate with the year-over-year increases in the 20-City Index above 5% every month since August 2015.
Unlike the boom-bust period surrounding the financial crisis, price gains are consistent across the 20 cities tracked in the release; currently, the range of the largest to smallest price change is 10 percentage points compared to a 20 percentage point range since 2001, and a 25 percentage point range between 2006 and 2009. Not only are prices rising consistently, they are doing so across the country.
Consumer Confidence in July came in at 127.4 – I had forecast 126.6 – on the heels of an upwardly revised 127.1 print (from 126.4) for June.
The Present Situation Index improved from 161.7 to 165.9 while the Expectations Index dropped from 104.0 to 101.7.
The takeaway from the report is the Conference Board’s indication that a back-to-back decline in the Expectations Index suggests consumers do not anticipate growth accelerating.
U.S. Construction Spending dropped 1.1% in June – I had forecast an expansion of 0.2% – following an upwardly revised 1.3% increase (from 0.4%) in May.
The June report featured a 0.4% decline in total private construction spending and a 3.5% drop in total public construction spending.
The drop in private construction spending was led by a 0.5% decline in residential construction spending and a 0.3% decline in non-residential construction spending. New single-family construction dropped 0.4% while new multifamily construction fell 2.8%.
On a year-over-year basis, total construction spending was up 6.1% with public construction spending up 4.9% and private construction spending up 6.5%.
The takeaway from the report is that the upward revision to spending in May mitigated most of the headline disappointment for June, which actually implies the June downturn is not as bad as it appears at first blush.
Non-Farm Payrolls missed my forecast for an increase of 190,000 new jobs but this was offset by upward revisions to payroll gains in May and June.
Companies added 157,000 jobs in July with May numbers revised up to 268,000 from 254,000 and June figures revised from 213,000 to 248,000. Over the past 3-months the country has added an average of 224,000 jobs per month.
The Unemployment Rate matched my forecast for a drop to 3.9%.
The takeaway from this report is that it matched the “Goldilocks” report seen in June. Not too hot, not too cold, but just right.
What to Watch for This Week
Consumer Credit in June is likely to have expanded by $15.5 billion following the $24.6 billion increase seen in May.
Inflation, as measured by the Consumer Price Index, should show the headline and core rates both up by 0.2% in July.
On a separate note, I am off on my annual kayaking adventure in Canada so will not be preparing a forecast next week. I will be back with my next weekly forecast on August 13.