U.S. equity markets reacted positively to this week’s economic data. With monetary policy hanging in the balance, financial markets are likely to be somewhat volatile this summer as they react to both good and bad economic data. Housing markets continue to be a source of good news. New home sales for May increased by 2.1 percent to hit a 476,000 unit annual rate. New home sales are still well below what would be considered a normal rate in the vicinity of 700,000 units per year, so there is ample upside potential for an extended increasing trend in new home sales. The supply of new homes remains tight, ticking up to 4.1 months’ worth in May.
With home sales firming, so are prices. The Case-Shiller 20-City Composite House Price Index gained 1.7 percent for the month of April, and is up 12.1 percent over the previous 12 months. All 20 cities showed monthly and yearly gains. Here, it is important to remember Stein’s Law, which says that anything that can’t go on forever won’t. Double-digit gains are to be expected in the early days following a major correction, but they are not sustainable over the long run.
Consumer confidence increased in June, up to 81.4 according to the Conference Board. This is the strongest number for that survey since January 2008, suggesting that gains in homeowner equity will go a long way toward revitalizing a downtrodden consumer. The University of Michigan’s Consumer Sentiment Index ticked down slightly in June to 84.1, but the trend looks positive.
New orders for durable goods increased by 3.6 percent in May. Once again, this number was pulled around by volatile commercial aircraft orders, up 51 percent for the month. New orders for nondefense capital goods excluding aircraft gained a respectable 1.1 percent in May and show a solid trend for the past three months.
Nominal personal income gained 0.5 percent in May as interest income increased by 1.9 percent and dividend income was up by 1.6 percent. Wage income gained a moderate 0.3 percent for the month, held in check by unspectacular job growth and only limited pressure on wage rates. Real disposable personal income was up a solid 0.4 percent in May. The personal saving rate increased to 3.2 percent, off its low of 2.2 percent in January. Real consumer spending increased by 0.2 percent in May. Expectations for stronger auto sales in June, bolstered by rising consumer confidence, suggest that households are getting some of their mojo back.
Initial claims for unemployment insurance fell by 9,000 for the week ending June 22, to hit a level of 346,000. The downtrend in UI claims visible through the first quarter of this year stalled in the second quarter.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:CMAEconWeekly062813 .