The June 24 week has plenty of economic data on the calendar and much of it speaks to present economic conditions. However, it is entirely possible the geopolitical developments will render it moot.
President Trump will attend the upcoming G20 leaders’ summit in Osaka, Japan on June 25-26. He has said he plans an “extended meeting” with President Xi of China. This could result in a resolution of the present stalled trade and tariff negotiation with China, or it could mean that US businesses will face the certainty of higher costs and disrupted supply chains. It will be helpful to have it decided either way, although the former is naturally to be preferred.
More concerning is the increased tension and belligerence in relations between the US and Iran. It is a touchy situation that could be made worse if Mr. Trump rachets up the rhetoric or orders a show of force that Iran feels obligated to respond to. The situation could deteriorate rapidly. Hopefully cooler heads will prevail, and the situation will back off from outright hostility.
Federal Reserve policymakers will be back in the public eye and ear in the coming week. What markets will be listening for is if those who previously indicated they were patient in regard to a possible rate cut have shifted to more in favor of one, or if those who were more open to a rate cut now feel it is more urgent. I think that the sense is growing that a cut will have to be done at the July 30-31 meeting to respond to the influence of increased risks in spite of the present good baseline for economic activity.
Note that there are relatively few policymakers on the calendar next week in advance of the Independence Day observances in the July 1 week. The schedule of appearances will probably remain thin for some week. The holiday is one reason, but the time for the Chair’s semiannual monetary policy testimony in July is nearing. As a courtesy to the Chair, most policymakers avoid public comment in order to not muddy any message the Chair will deliver. The dates of the two days of testimony are not yet set.
The third and final estimate of first quarter GDP will be released at 8:30 ET on Thursday. It is not expected to be much changed from the up 3.1% in the second estimate. Personal consumption expenditures may be revised up a bit, but most revisions should be small and offsetting. At this time the focus is on growth in the second quarter and how it has been affected by trade and tariff policy, and lower interest rates that may have spurred some spending and investment.
More interesting could be the May data on personal income and spending at 8:30 ET on Friday, and its reporting of the PCE deflator. Personal income has seen modest, steady increase in wages and salaries that is likely to continue. Data for retail sales points to a month of solid gains for consumer spending in spite of lower gasoline prices that will limit increases in nondurables. However, what markets will want to know is if the year-over-year increase in the PCE deflator is edging back towards the Fed’s 2% objective, or if the undershoot is lengthening into another month.
New orders for durable goods in May at 8:30 ET on Wednesday are likely to look soft. Regional data suggests that orders weren’t bad for the month, but there will be a lack of support from the transportation sector. The fact that Boeing received no new orders in May presents a downside risk for the component. However, May is often a slack month for new aircraft orders, so the seasonal adjustment factors will not be looking for much of a rise, if any.
Signs of fresh life in the housing sector should continue. Sales of new single-family homes in May at 10:00 ET on Tuesday are likely to show a firming as consumers opt for new construction in a market with limited supplies of existing units. A substantial portion of sales are expected to be in homes not yet built or under construction since finished units are also in short supply. The NAR’s Pending Home Sales Index for May at 10:00 ET on Thursday should remain in the neighborhood of the peaks of 2018 as low mortgage rates motivate buyers to lock in rates for purchase contracts. The FHFA House Price Index for April at 9:00 ET on Tuesday is relatively old compared to other housing market data, but it could show that the moderation in home price increases has started to regain some upward momentum.
Monthly measures of consumer confidence are expected to reflect deterioration in the outlook for six months from now. The Conference Board’s Consumer Confidence Index for June at 10:00 ET on Tuesday will probably see a substantial dip from the 134.1 of May related to declines in perceptions of both present conditions and six-month expectations. The level should remain elevated in the historical context, just not at the giddy readings of May. The final University of Michigan Consumer Sentiment Index for June at 10:00 ET on Friday could have a small downward revision from the 97.9 in the preliminary report. Optimism about current conditions should remain high with a strong labor market, falling gasoline prices, and prospects of lower borrowing costs for big ticket purchases. However, consumers will have increased concerns about a possible economic downturn and global strife in the near future.
Initial jobless claims for the week ending June 23 at 8:30 ET on Thursday should not offer much that is different from recent weeks. Claims seem to have settled in a range around 215,000-225,000 that is consistent with a vibrant labor market.
The remaining regional surveys for manufacturing and services in June are likely to present a mixed picture. So far, the data from New York (manufacturing and services) and Philadelphia (manufacturing) suggest that expansion slowed in June. However, the data isn’t clear cut about how severe that slowing is. Of the remaining reports, it is the Richmond Survey of Manufacturing and Survey of Service Sector Activity at 10:00 ET on Tuesday that will probably be decisive for expectations for the ISM indexes in the following week. These two have strong correlations to the national numbers. Nonetheless, there will be attention to spare for the Dallas Fed Texas Manufacturing Outlook at 10:30 ET on Monday and Texas Service Sector Outlook at 10:30 ET on Tuesday. The District Bank surveys will close out with the Kansas City Fed Manufacturing Survey at 11:00 ET on Thursday.
The MNI-ISM Chicago Business Barometer for June at 9:45 ET on Friday includes respondents from both the service and manufacturing sectors. The index has been signaling modest expansion for the past two months but may get a boost from Boeing which had substantial success in getting new orders at the Paris Airshow.
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