Comerica Economic Weekly

Home sales and Fed chatter dominated this week’s U.S. economic scene.

Housing markets look like they are going in the right direction after a winter stall. April new home sales increased by 6.4 percent to reach a 433,000 unit rate and the weak March numbers were revised up. Existing home sales hit a peak last July, at a 5.38 million unit rate, and then declined in 7 of the next 8 months. Fortunately, in April, existing home sales increased slightly by 1.3 percent to hit an annual rate of 4.65 million units. We expect that improving economic conditions across most U.S. localities will fuel ongoing gains in existing home sales.

The Conference Board’s Leading Economic Index increased by 0.4 percent in April, following a strong 1.0 percent gain in March. The Coincident index was up by 0.1 percent in April and the Lagging index was up by 0.2 percent.

Initial claims for unemployment insurance zagged back up by 28,000 to hit 326,000 for the week ending May 17, after zigging down the week before. The trend remains consistent with ongoing improvement in labor market conditions. Continuing claims for the week ending May 10 eased by 13,000 to hit 2,653,000, the lowest level for that series since December 1, 2007.

The minutes of the April 29/30 FOMC meeting and commentary by various FOMC members this week show that an active discussion is going on within the Fed about how to renormalize interest rates. Fed officials made it very clear that this discussion does not imply an accelerated schedule for interest rate lift-off. What it does mean is that the Fed will have an array of new tools for managing interest rates, beyond traditional open market operations.

The acronym ONRRP will become part of the economic lexicon. A new tool, overnight reverse repurchase operations appear likely to figure prominently in Federal Reserve interest rate policy going forward. This liquidity-draining device may increase the interest rate transmission role that money-market mutual funds have.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-23-14.

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