As we get a more complete read on the second quarter, a complex picture emerges. On one hand, we see a stronger consumer sector, but a consumer sector whose appetite for new cars may be sated. Low energy prices are still a support to consumers and to most businesses. On the other hand, low oil prices are thwarting business investment. Also, crude oil and petroleum product inventory drawdowns are weighing on overall GDP growth.
The first estimate of second quarter 2016 real GDP growth was much weaker than expected, registering a modest 1.2 percent annual growth rate. The Q2 GDP numbers are a mixed bag. Inventories were a key drag, declining through the quarter and subtracting 1.2 percentage points from the headline growth rate. Real consumer spending grew at a 4.2 percent annual rate, the strongest spending expansion since the last quarter of 2014. Business investment was weak, declining at a 2.2 percent annual rate. Residential investment was also weak, declining at a 6.1 percent annual rate. Q3 now looks to show moderate overall GDP growth, in the range of 2.0 to 2.5 percent.
New home sales in June increased by 3.5 percent to a 592,000 unit annual rate. While the series is still below its historical average of about 650,000 units per year, it is once again trending up. We expect this to support more single-family permits and starts, which have been range-bound over the last year.
The Case-Shiller U.S. National Home Price Index increased by 0.2 percent for the month, and was up 5.0 percent over the previous 12 months. Price gains through the first five months of 2016 have not been as strong nor as evenly distributed as they were at the end of 2015.
New orders for durable goods fell by 4.0 percent in June. Commercial aircraft orders were down 58.8 percent for the month. Non-aircraft non-defense capital goods orders gained a modest 0.2 percent.
Initial claims for unemployment insurance increased by 14,000 to 266,000 for the week ending July 23. Continuing claims gained 7,000 to hit 2,139,000 for the week ending July 16. We expect payroll employment to increase by about 185,000 jobs in July.
The Conference Board’s Consumer Confidence Index ticked down slightly in July to 97.3, after increasing in June to 97.4. The index has been range-bound since early 2015.
The Bank of Japan voted today to leave their benchmark lending rate unchanged. The BOJ did increase their pace of asset purchases, including exchange-traded stock funds, but the smaller-than-expected move resulted in a strengthening of the yen. Likewise, the Bank of England, the European Central Bank and the Federal Reserve all left their benchmark interest rates unchanged this month. So we ask… is monetary policy coordination back in vogue? Central bankers will have the opportunity to compare notes at the Fed’s annual retreat in Jackson Hole, Wyoming over August 25/26.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-29-2016.