Key US Data Releases and Events

Bernanke testimony: In his Congressional testimony this week, Federal Reserve chairman Ben Bernanke stuck to boilerplate statements about the Fed standing ready to take further action to support the recovery should it falter. But this has been his default position for a while, so it tells us little about the Fed’s intentions. Perhaps more significant was his admission that the slowdown in jobs growth this spring was more than just payback for weather-related strength earlier in the year, as well as his expectation that reductions in the unemployment rate would be frustratingly slow. At some point this year, we think the Fed will have to lower its expectations for output and jobs growth and inflation stability once again, at which point it will initiate a third round of quantitative easing. But Bernanke’s comments do not suggest that the Fed is there yet, so no decision is expected at the late-July meeting.

Can we finally call a housing recovery? Housing data this week were generally supportive of a recovery. Housing starts jumped 6.9% in June and are now 24.0% higher than a year ago. Single-family units were up 4.7%. Permits fell, but this was likely payback for strong permitting in May. Meanwhile, existing home sales unexpectedly fell, but not for lack of buyer interest. According to the National Association of Realtors, buyer interest was solid last month and traffic has doubled from last fall. Instead, “tight supplies of affordable homes [limited] first time buyers.” Indeed, inventories of single-family homes fell 3.6%. A shortage of affordable homes for sale helped push up prices and kept first-time buyers to just 32% of total sales, down from 34% in May. Thus, we are starting to see the green shoots of a housing recovery—but do not expect a surge in buying and construction any time soon. The housing recovery will ultimately be limited by tight mortgage credit and slow progress within the rest of the economy.

Second-quarter GDP growth: Coming into the past week, we had penciled in 1.4% real GDP growth for the second quarter (to be released Friday, July 27). A surprise 0.5% drop in June retail sales pulled the GDP estimate down. But stronger-than-expected inventory accumulation pushed it back up a bit. Nevertheless, we now expect just 1.2% GDP growth for the quarter, down sharply from the already-weak 1.9% in the first quarter. Consumer spending is clocked at a measly 1.0% and inventory accumulation (centered on autos) will likely be a drag in the second half of the year. So the economy avoids recession for another quarter, but not by much.

Wednesday, July 25 – New Home Sales (Jun.)

• IHS Global Insight: 0.375 Mil.
• Consensus: 0.370 Mil.
• Last Actual: 0.369 Mil. (May)

What to Look For

• A rise in new home sales

Implications

Housing permits are up 19% from a year ago, suggesting that home builders are seeing stronger buyer interest. As a result, we expect new home sales to have advanced 1.6% in June, to a 375,000-unit annual rate.

Thursday, July 26 – Durable Goods Orders (Jun.)

• IHS Global Insight: 0.3%
• Consensus: 0.4%
• Last Actual: 1.3% (May)

What to Look For

• A rise in durable goods orders, on increases in commercial aircraft and turbine machinery

Implications

Durable goods orders should firm with help from commercial aircraft and turbine machinery. Boeing garnered more orders for new planes in June than in May, and turbines will enter a second month of gains before the expected July crash. Elsewhere, however, there will be little strength. June durables shipments, meanwhile, will be the last piece of news used in constructing second-quarter GDP estimates.

Friday, July 27 – Gross Domestic Product (First Estimate, Q2)

• IHS Global Insight: 1.2%
• Consensus: 1.4%
• Last Actual: 1.9% (Q1)

What to Look For

• A slowdown in growth, centered on the US consumer

Implications

We expect GDP growth to slow to a meager 1.2% in the second quarter, from 1.9% in the first. The main problem area is consumer spending, which we expect to grow just 1.0% in the second quarter, down from 2.5% in the first. Inventories should add to growth in the second quarter (probably contributing 0.3 percentage point), largely due to the rebuilding of motor vehicle inventories, but they are likely to become a drag on growth in the second half of the year. One piece of good news in a weak overall report should be an improvement in business fixed investment growth, thanks to faster growth in business equipment spending. This GDP report will contain annual revisions that have the potential to change the perceived trajectory of the recovery—as they did, substantially for the worse, a year ago.

Friday, July 27 – Reuters/University of Michigan Consumer Sentiment Index (July, final)

• IHS Global Insight: 73.1
• Consensus: 72.5
• Last Actual: 72.0 (July, preliminary)

What to Look For

• A small improvement over the early-month reading

Implications

Consumer sentiment will end the month slightly higher than the early-month reading, and just a hair under the June reading. Poor job prospects, stock market volatility, and renewed pessimism are keeping sentiment low.

by Nigel Gault and Paul Edelstein