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Look back at June 29, 2019 week: Data wasn’t bad, but hard to put in context without settled trade policy

A look back at the June 24 week doesn’t offer much resolution to the uncertainties facing the outlook for the US economy. At this writing, it is still unknown if the bilateral talks between Presidents Trump and Xi will reach a positive resolution about trade and tariffs which seem to be the primary concern at the moment. Hopes are high for a cut in short-term rates when the FOMC next meets on July 30-31 and this week’s data does not contradict that expectation.

The third and final estimate of first quarter GDP came in at an unrevised 3.1%, although that somewhat disguised that consumer spending was lower than previously reported while gross fixed investment was higher. In any case, the first quarter is old news with the second quarter ending.  Growth is likely to look anemic for the April-June quarter compared to January-March.

Personal income and spending for May indicated that incomes continue to rise solidly while spending – if a bit uneven – continues to reflect decent activity. To all indications the job market remains vibrant with modestly rising incomes and consequent increased confidence and spending.

The Conference Board’s Consumer Confidence Index and the final University of Michigan Consumer Sentiment Index told a similar story in that the high confidence of May took a bit of a tumble in June as the US economy faced greater uncertainties from domestic policy and geopolitical events. The Consumer Confidence Index – which is a bit more focused on business activity – fell 9.8 points to 121.5 in June. The Consumer Sentiment Index – which is more about buying conditions – slipped 1.8 points to 98.2. The take-away is that consumers are sensitive to the prospect of an economic downturn, but that levels are still consistent with strong confidence.

Regional surveys of conditions in manufacturing and services are definitely feeling the hangover from preparing for the possibility of higher and more widespread tariffs earlier this year, and the lingering effects of not knowing if the situation is going to be resolved soon or favorably.

Service sector surveys for June suggest that conditions are less immediately affected by worries about tariffs although these are not absent. The Richmond Fed’s Service Sector Survey for June put the revenues index up sharply to 17 from 1 in May. The general business activity index in the Dallas Fed’s Texas Service Sector Outlook was up to 3.2 in June after -0.3 in May. These are not outstanding readings, but are nonetheless signs of continued expansion, at least at a modest pace.

Manufacturing surveys in the June 24 week included the Dallas Fed’s Texas Manufacturing Outlook added to gloomier prospects with its general business activity index falling to -12.1 for June after -5.3 in May. The Richmond Fed Composite Manufacturing Index held on to narrow expansion at 3 in June after 5 in May. The Kansas City Manufacturing Index declined to 0 (zero) after 4 in the prior month. Survey respondents widely cite concerns about supply chains and costs in the face of unsettled trade policy.

The MNI-ISM Chicago Business Barometer shocked with a decline to 48.4 in June to its first sub-50 reading since January 2017. This survey includes respondents in both manufacturing and services and can be a bit erratic. There are reasons to think that it will recover in July including Boeing’s success at the Paris Air Show in getting a letter of intent for a large order of 737 MAX aircraft.

New orders for durable goods in May felt the pinch of no new aircraft orders for Boeing in the month. The 1.2% decline overall was in large part due to the 4.6% drop in transportation which in turn was due to declines of 28.2% for nondefense aircraft and 15.3% in defense aircraft. Excluding transportation, orders were up 0.3%.

Data on the housing market was mixed, but even where a little disappointing compared to market expectations, still showing that housing has revived as mortgage rates fell. Sales of new single-family homes were down 7.8% in May from April. However, the level was above that seen in the second half of 2018 when sales were hurt by increases in mortgage rates and was coming off the pent-up demand that drove sales up in recent months. The NAR’s Pending Home Sales Index for May came in above expectations and was up 1.1% month-over-month to 105.4, of a piece with recent months’ readings that suggest upward momentum for existing home sales. The FHFA House Price Index for April hinted that home prices are again rising more firmly as lower mortgage rates improve affordability. The Index was up 5.3% year-over-year, a slight pick up from the 5.2% of February and March.


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