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Look back at May 27, 2019 week: Second quarter 2/3 gone and economic data is mixed

A look back at the May 27 week shows few standouts among the economic data reports. Mainly, the numbers confirmed what is already known about conditions in various sectors of the economy.

Housing is doing fundamentally better, although on the surface the performance looks a bit uneven. The FHFA House Price Index for March is relatively old compared to most of the rest of the data. It indicated that the pace of price increases was slower and had leveled off at around 5% year-over-year. However, the prior week’s data on sales of new and existing homes in April point to a sharp rise in prices. The NAR’s Pending Home Sales Index for April slipped 1.5% to 104.3, however, it was after a surge in March and is still the second-best reading since the third quarter 2018.

Freddie Mac reported the 30-year fixed rate was 3.99% as of May 30, the first time below the 4%-mark since January 2018. Declines in mortgage rates have provided some impetus for the housing market in the past few months. These sorts of lows could persuade fencesitters to consider a home purchase while affordability is better and before prices continue to climb.

The second estimate of first quarter GDP growth was revised down a scant 0.1 to up 3.1%. Most revisions were small and offsetting. The underlying story of growth supported by increased inventories and less drag from net exports was the same. The outlook for the second quarter is less rosy.

Personal income and spending were both higher than expected in April, up 0.5% and up 0.3% month-over-month, respectively. Wages and salaries continued their steady, persistent increase at up 0.3% in April. Spending on durables declined 0.8%, but were up 0.7% for nondurables and up 0.3% for services.

Consumer confidence soared in May relative to April, but the numbers should be viewed with a caution. The Conference Board’s Consumer Confidence Index rose 4.9 points to 134.1 in May, a rebound to levels seen before confidence lost ground when it because apparent that the economy was slowing down and during the partial federal government shutdown. The final University of Michigan Consumer Sentiment Index for May was 100.0, suggesting that confidence was within reach of the peaks of 2018. However, both indexes may ultimately be upside outliers, at least until it becomes clear that expansion in the US has managed to weather rocky trade and tariff policy changes, flooding and late planting in Midwest agricultural communities, and an iffier geopolitical environment.

In part expectations of a rate cut from the Federal Reserve are based on evidence that inflation is running below the Fed’s 2% objective and/or that inflation expectations are becoming unanchored. The PCE deflator in April – while still low relative to the objective – is less so and the effects of idiosyncratic factors are starting to fade. The Fed’s preferred measure is the year-over-year PCE deflator and it rose one-tenth to 1.5% in April with the core up one-tenth to 1.6%.

Inflation expectations have also shaken off a brief turn lower earlier this year and anticipate inflation nearer the objective. The University of Michigan Survey of Consumers put 1-year inflation expectations up four-tenths to 2.9% in May from April, and the 5-year measure up three-tenths to 2.6%.

The final regional surveys of manufacturing for May were released from the Dallas and Richmond Feds to add to what is known from New York, Philadelphia, and Kansas City. With only one exception, the factory sectors in the respective Districts’ surveys showed modest-to-moderate expansion continues and hint that the ISM Manufacturing Index should have a similar tone.

Regional surveys for the service sector for May were less consistent in assessing activity. The Dallas and Richmond reports released this week told a starkly different story than the earlier New York and Philadelphia reports. The Dallas general business activity index and the Richmond service sector revenues index tend to correlate the best of the four with the ISM Non-Manufacturing Index. If this holds true, services are likely to look weak at the national level.


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