The May 27 week starts off with the Memorial Day observance on Monday. The holiday means that some data normally released on Monday and Tuesday will get pushed back to Tuesday and Wednesday. The remainder of the week will see the second quarter reach the 2/3 point and will include a few reports that should suggest how the economy is faring relative to the strong up 3.2% in the first quarter.
The 3.2% reading for GDP in the first quarter could see some revision when the second estimate is released at 8:30 ET on Thursday. It is too soon to expect much impact from uncertain trade policy since expectations were that the negotiations with China would reach a positive resolution, although delays heightened the risks. Certainly domestic businesses were taking some steps to ensure that in the worst case that stocks on hand were sufficient and/or caching materials to avoid higher costs in the future. For similar reasons, exports could have picked up as customers abroad wanted to ensure access to US goods and services. Net exports and the change in inventories could remain the main factors behind the surprisingly solid first quarter performance and could be negatives in the second quarter.
Personal income in April at 8:30 ET on Friday is expected to show that overall income remains on an upward trend due to steadily gaining wages and salaries. Personal consumption expenditures are probably going to look soft after retail spending was below expectations in April, especially for hard goods. The continued upward movement in gasoline prices will keep nondurables spending trending higher. Services costs should be on trend with a modest increase. The PCE deflator is probably not yet past the transitory or idiosyncratic factors that have kept inflation at the core lower than expected but it shouldn’t be worse than in the prior month. Soft readings will not immediately impact Fed policymakers’ outlook for rates. However, it might cause a few to lower their inflation projections in the Summary of Economic Projections when that is updated at the June 18-19 FOMC meeting.
As an aside, there will be few policymakers on the public engagement calendar in the week in the run up to the Fed’s “Conference on Monetary Policy Strategy, Tools, and Communication Practices” on June 4-5.
The last monthly indexes for consumer confidence in May will be the The Conference Board’s Consumer Confidence Index at 10:00 ET on Tuesday and the final University of Michigan’s Consumer Sentiment Index at 10:00 ET on Friday. The Consumer Confidence Index normally exhibits at pattern of softer/firmer readings month-to-month. The preliminary 129.2 in April came after 124.2 in March. As such, I might look for a somewhat lower reading in May. However, the preliminary May Consumer Sentiment Index surprised with a 5.2 point surge to 102.4, a high not seen since early 2004. I think that it is an outlier that will see some downward revision and that it does not presage a similar burst of confidence in The Conference Board’s indicator. However, it does mean an upside surprise is more possible.
The NAR’s Pending Home Sales Index for April at 10:00 ET on Thursday may give back some of the sharp rise to 105.8 in March from 101.9 in February, but not all of it. With mortgage interest rates at 15-month lows, consumers are going to be anxious to get contracts for home purchases signed and in the pipeline. Home prices seem to be on the rise again, although the increases may not be particularly visible in the relatively old March data for the FHFA House Price Index at 9:00 ET on Tuesday. It was rising prices combined with rising interest rates that choked off a lot of housing market activity in the second half of 2018. The latter is no longer the case and could encourage homebuying will it is more affordable.
The last of the May reports on conditions in manufacturing and services are slated by the end of the week. The Dallas Fed’s Texas Manufacturing Outlook Survey is at 10:30 ET on Tuesday and the Richmond Fed’s Survey of Manufacturing is at 10:00 ET on Wednesday. Both were delayed a day due to the holiday. So far the data available from the New York, Philadelphia, and Kansas City Feds suggest that activity in the factory sector is facing long-standing constraints in the form of labor shortages and a fresh round of challenges from trade and tariff policy that could increase costs and impact supplier deliveries. Neither of these problems are unique to any one region and the indexes from Dallas and Richmond are likely to report similar conditions.
The Richmond Fed Survey of Service Sector Conditions for May is at 10:00 ET on Wednesday, followed by the Dallas Fed’s Texas Service Sector Outlook at 10:30 ET. The nonmanufacturing sector indexes from the New York and Philadelphia Feds are both illustrative of solid conditions that have recovered some lost ground after the slowdown late in 2018 and the partial federal government shutdown. However, it is the Dallas and Richmond reports that have the strongest correlation to the ISM Non-Manufacturing Index. It is to be hoped that these will confirm the positive story in other regions.
The MNI-ISM Chicago Business Barometer for May at 9:45 ET on Friday will present a picture of both manufacturing and services. This regional measure has suffered a sharp decline in the last few months, but it is possible it is mainly due to the problems at Boeing related to the 737 MAX airplane.
Initial jobless claims for the week ended May 25 at 8:30 ET on Thursday could experience a bit of noise from the holiday weekend and the end of school years. However, even a substantial mismatch in the seasonal adjustment factors should not obscure that the labor market remains tight.
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