It was a light week for U.S. data. April home sales were soft. Q1 GDP was revised up and the Fed minutes revealed more about balance sheet reduction.
New home sales fell by 11.4 percent, to a 569,000 unit annual rate in April, the weakest sales rate since last December. The months’ supply of new homes for sale increased to 5.7 months’ worth, which is the highest inventory number since September 2015.
Existing home sales for April dipped by 2.3 percent, to a 5,570,000 unit annual rate. The inventory of existing homes for sale stayed tight at 4.2 months’ worth. The median sales price of an existing home this April was $244,800 or 6 percent higher than the previous April.
Mortgage applications for purchase have been soft through mid-May, down 0.8 percent for the week ending May 19.
First quarter real GDP growth was revised up from the first estimate of 0.7 percent to now 1.2 percent annualized growth. Consumer spending and business fixed investment were bumped up. The decline in state/local government spending was reduced. We still expect to see stronger growth in the current quarter.
New orders for durable goods decreased by 0.7 percent in April, after four consecutive monthly gains. Manufacturing conditions remain healthy by that measure. However, we will buy a little of that back by pointing out that shipments of manufactured durable goods have declined for three out of the last four months. Shipments drive the manufacturing component of GDP.
Initial claims for unemployment insurance increased inconsequentially by 1,000 for the week ending May 20, to hit 234,000. Continuing claims gained 24,000 for the week ending May 13, to hit 1,923,000, still a very low number.
Key takeaways from the minutes of the May 2/3 FOMC meeting: (1) The Fed views weak first quarter GDP growth as transitory. (2) The Staff economic forecast is supported by the assumption of expansive fiscal policy. (3) There is some concern that monetary policy normalization by the Fed could lead to financial strains in emerging markets. (4) FOMC members expect that conditions will continue to warrant gradual increases in the fed funds rate. This statement is consistent with a 25-basis-point increase in the fed funds rate range on June 14. (5) Balance sheet reduction will be executed in a gradual and predictable manner. (6) Caps on the dollar amount of securities that the Fed will roll off will be set low and then raised every three months. (7) Once ramped up, the caps will be maintained until the balance sheet has reached its targeted size. (8) The Fed’s Policy Normalization Principles and Plans will be updated soon. (9) The Fed will likely begin balance sheet reduction before the end of this year.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 05262017.