U.S. economic data released over the last full week of September were consistent with ongoing GDP expansion. However, the data was somewhat nuanced, and subject to interpretation.
The interpretation of housing-related data is challenging. The real face of the housing market was obscured this week as existing and new home sales for August went in opposite directions. Sales of existing homes dipped by 1.8 percent in August, to a 5.05 million unit annual rate. The months’ supply of existing homes on the market now stands at 5.5 months’ worth. Not loose, but not excessively tight either.
The previously moribund new single-family home market had a breakout month in August, when sales jumped by 18.0 percent to reach a 504,000 unit annual sales rate. August sales were the best since May 2008. One data point does not make a trend, so we will be watching new home sales closely this fall to see if the breakout has legs. If it does, that would be very good news for builders. The months’ supply of new single-family homes dipped to a relatively tight 4.8 months’ worth in August; this will motivate builders.
Initial claims for unemployment insurance increased by 12,000 for the week ending September 20, to a still-favorable level of 293,000. Continuing claims for the week ending September 13 gained 7,000 to hit 2,439,000 (also still a good number).
New orders for durables goods in August dropped by 18.2 percent. But a big drop was expected after the huge 22.5 percent gain in July that was fueled by civilian aircraft orders. Core new orders (nondefense capital goods less aircraft) gained 0.6 percent in August.
The third estimate of Q2 real GDP growth showed another upward revision, now at 4.6 percent. This is an impressive number for this economy. However, it is important to remember that GDP growth is a cannibal. Strong quarterly GDP growth can come at the expense of growth in following quarters. We expect to see a step down in real GDP growth in Q3 to 2.5 to 3.0 percent.
Meanwhile, back at the Fed, the calls for a change in forward guidance continue. The new president of the Federal Reserve Bank of Cleveland, Loretta Mester, delivered a speech on Wednesday stating that she would like to see the “considerable time” phrase reformulated. Charles Plosser of the Philadelphia Fed announced his intention to retire this coming March.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 09-26-14.