June Existing Home Sales, Leading Index, July Philly Fed, UI Claims

A Pile of Soft Data Consistent with a Cooler Economy

  • Existing Home Sales for June unexpectedly fell by 5.4 percent, to a 4.37 million unit sales rate.
  • The Leading Economic Index for June decreased by 0.3 percent, weighed down by manufacturing.
  • The Philadelphia Fed’s Business Outlook Survey showed worsening manufacturing conditions.
  • Initial Claims for Unemployment Insurance increased by 34,000 for the week ending July 14.

Economic data continue to point to cooler conditions at the end of the second quarter and into the beginning of the third quarter. Existing home sales unexpectedly fell by 5.5 percent, to a 4.47 million unit rate, the weakest sales rate since October 2011. The National Association of Realtors is blaming a reduced inventory of distressed homes for the drop in sales, further stating that buyer interest remains solid. The existing home sales series can be volatile, so one weak month does not make a trend, stay tuned. Not all of the existing home sales report was bad. The non-seasonally adjusted median sales price of an existing home increased again in June, now up 7.9 percent from a year ago.  Piling on, the June Leading Economic Index fell by 0.3 percent, the second monthly decline in the last three months. Weighing on the index, in order of negative contributions, were new orders for manufactured goods, consumer expectations, building permits, unemployment claims, and stock prices. The Coincident Index increased by 0.2 percent in June, as did the Lagging Index. A decline in the leading index is by no means a sufficient reason, by itself, to hoist the recession flag. The Philadelphia Federal Reserve Bank’s Business Outlook Survey for July showed its third consecutive negative reading for manufacturing conditions in eastern Pennsylvania and southern New Jersey. Initial claims for unemployment insurance increased by 34,000 for the week ending July 14, to hit 386,000, a zig after last week’s zag.

Given the somewhat dour testimony of Federal Reserve Chairman Ben Bernanke this week before Congress, and the ongoing signs of cooler economic growth, speculation has ramped up about more possible actions by the Federal Reserve this year to stimulate economic growth. It is important to include in the discussion the fact that the Fed is already engaged in significant actions including its pledge to keep the fed funds rate exceptionally low through at least the end of 2014 and its recent extension of “Operation Twist” through the end of this year.  Any additional action by the Fed would need to compliment these existing programs. Another round of quantitative easing, QE3, may not be the best compliment to Operation Twist as it would combine a portfolio rebalancing program with a portfolio expansion program, muddying the effects of each. However, if the Fed was to initiate a new program of funding-for-lending through the discount window, that would potentially compliment other programs without the muddying effect.

Market Reaction: Equity prices are gaining. Treasury yields are up at the long end of the yield curve. Oil is up to $92.62/barrel. The dollar is down against the yen and up versus the euro.

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