“Encouraging Market Resilience”
- The Conference Board’s Leading Economic Index for June increased by 0.3 percent.
- Existing Home Sales for June increased by 1.1 percent to a 5.57 million unit annual rate.
- Initial Claims for Unemployment Insurance fell by 1,000 for the week ending July 16 to 253,000.
- We expect no change in interest rate policy at next week’s FOMC meeting.
The Conference Board’s Leading Economic Index for June increased by 0.3 percent, consistent with our expectations of an ongoing moderate expansion for the U.S. economy in the third quarter. The Coincident Index, which focuses on current conditions, also increased by 0.3 percent. The Lagging Index dipped by 0.1 percent in June. Of the ten components of the Leading index, eight were positive for the month. The biggest push came from initial claims for unemployment insurance (inverted), residential building permits and stock prices. The only negative component was average weekly hours for manufacturers. June is only the second positive month for the Leading Index in the last seven months. Weak stock prices early this year are a part of that story. Conversely, recent gains in stock prices will help boost the July index. We expect to see the Leading Index show more consistent gains through the second half of 2016, indicating ongoing momentum as we turn the corner into 2017.
Existing home sales increased in June by 1.1 percent, to hit a 5.57 million unit annual rate. This is the strongest sales rate since February 2007. The recent trend looks positive. Sales of existing homes are reasonably close to their long run average, in contrast to sales of new homes which remain historically weak. Months’ supply of existing homes dipped to 4.6 months’ worth, fairly tight conditions nationwide. The median sales price of an existing home was up by 4.8 percent in June over the previous 12 months.
Initial claims for unemployment insurance dipped by 1,000 for the week ending July 16, to a very low 253,000. Continuing claims fell by 25,000 to hit 2,128,000 for the week ending July 9. Given these strong numbers, we expect July payroll job gains to be solid, in the vicinity of about 195,000 jobs.
European Central Bank President Mario Draghi said there would be no new stimulus coming from the ECB this month, despite the BREXIT vote and the recent terrorism in Nice, France. Draghi commented on the “encouraging market resilience” of the EU economy, but left the door open for more stimulus later, if needed. This follows on the heels of the Bank of England’s similar non-action last week. Next week we expect the U.S. Federal Reserve to follow suit and leave the fed funds rate unchanged. We will be watching to see if there are any hints that the Fed is considering lifting interest rates in September. After the FOMC meeting next Tuesday and Wednesday, the Fed has its annual retreat in Jackson Hole, Wyoming. This will give U.S. and global central bankers the opportunity to discuss strategy for the fall. We expect the Bank of Japan to break ranks and announce additional stimulus at their July 29 Monetary Policy Committee meeting.
Market Reaction: Equity markets opened with losses. The 10-Year Treasury bond yield is down to 1.57 percent. NYMEX crude oil is down to $45.11/barrel. Nat gas futures are up to $2.65/mmBTU.
For a PDF version of this Comerica Economic Alert click here:Leading Indicators 07-21-16.