A look back at the July 22 week offers little change in perspective about the US economy and outlook for Federal Reserve monetary policy. The data was neither so positive that it put future rate cuts – presumably after one on July 31 – on hold, nor bad enough to keep rate cuts definitely in play.
With Fed policymakers out of the public eye and ear during the communications blackout period around the meeting (midnight, July 27 through midnight, August 1) the only information was the economic data.
The advance estimate for second quarter GDP was up 2.1%. The reading was driven by solid consumer spending as anticipated, but stronger than expected. Government spending also provided support for growth. And as expected, business investment, net exports, and the change in inventories was a drag on growth. Altogether, though, it was a decent report and one that belies the risks facing the US economy.
New orders for durable goods were well above the median expectation with a 2.0% increase in June. Once again it was the transportation sector that swung the pendulum after the 2.3% decline in May. Orders for motor vehicles were up a nice 3.1%, while nondefense aircraft orders soared 75.5% even as nondefense aircraft orders were down 32.1%.
Data on home sales was generally positive for June. Sales of existing homes slipped 1.7% to 5.27 million units (SAAR) after 5.36 million units in May, but that was a 2.9% rise from the prior month. Some unwinding was to be expected. Sales for new single-family homes were up 7.0% in June to 646,000 as many homebuyers opted for new construction where the supply of existing homes was thin. Sales of smaller units have grown at the expense of larger, more expensive ones. As a result, the median and average of home prices is not rising as quickly as it was. The FHFA House Price Index for May was up only 0.1% month-over-month and at up 5.0% compared to a year-ago. Home prices may pick up a little steam with low mortgage interest rates lingering into July.
The surveys of manufacturing activity in July for four of five District Banks have been published. The numbers point in both directions for the activity. The Philadelphia manufacturing general business activity index roared back to 21.8 in July after 0.3 in June, while the Richmond Fed’s Composite Manufacturing Index plunged to -12 after 2 in the prior month. The Kansas City Manufacturing Index dipped to -1 in July after 0 (zero) in June, while the New York Fed’s general business conditions index regained upward momentum at 4.3 after -8.6. It isn’t clear which is more likely to signal the tone of the ISM Manufacturing Index when it is released at 10:00 ET on Thursday, August 1.
On the other hand, the surveys for the service sector showed less drama and were more in line with consistent, moderate activity. The Richmond Fed’s service sector revenue measure declined somewhat to 11 in July after 16 in June but wasn’t out of line with the underlying trend so far in 2019. The Philadelphia Fed’s Non-Manufacturing Index had a solid rebound to 21.4 after 8.2 and also appears to more-or-less mirror the underlying trend. Last week, the New York Fed activity index rose to 9.7 from 5.8, a modest pace of expansion.
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