U.S. economic data released this week was generally positive and consistent with an ongoing moderate GDP expansion in the third quarter.
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. We expect to see the Leading Index show consistent gains through the second half of 2016, indicating ongoing momentum as we turn the corner into 2017.
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.
Housing starts improved in June, but remained within the range established in the second quarter of 2015. Total starts increased by 4.8 percent in June to a 1.189 million unit annual rate. Total housing starts are still below the estimated rate of household formation.
According to the National Association of Homebuilders, builder sentiment ticked down slightly in July to 59. Builders’ expectations of future sales declined, perhaps in reaction to financial news chatter about BREXIT. We believe that long-term underbuilding, moderate economic growth and low interest rates mean that the demand is out there to support increases in the rate of construction through the remainder of this year.
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. 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.
European Central Bank President Mario Draghi said there would be no new stimulus 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. 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. We expect the Bank of Japan to break ranks and announce additional stimulus at their July 28/29 Monetary Policy Committee meeting.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-22-2016.