It was a fairly light week for data, but a heavy week for Fed-watching as the Federal Reserve Bank of Kansas City hosted their annual retreat in Jackson Hole, Wyoming, yesterday and today.
This morning, Janet Yellen delivered a speech titled, “The Federal Reserve’s Monetary Policy Toolkit: Past, Present and Future.” The bulk of the speech focused on possible tools for the Fed for fighting the next recession. In her opening remarks, Janet Yellen made two key statements about the near-term outlook for interest rates. First, she said, “the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time.” Second, she continued with, “…the case for an increase in the federal funds rate has strengthened in recent months.” Yellen’s comments suggest the odds of a fed funds rate hike on September 21 have increased. We place them at about 33 percent, contingent on the August jobs data, due out next Friday.
New home sales in July beat expectations, surging by 12.4 percent to a 654,000 unit annual rate. This was the strongest sales rate since October 2007. Also, it was close to the historical monthly average of about 650,000 since the beginning of the series in 1963.
Existing home sales fell to a 5.39 million unit annual rate in July, near the series average since 1999. The months’ supply of existing homes on the market ticked up to 4.7 months’ worth, still indicative of a tight overall housing market. The median price of an existing home was up 5.3 percent in July over the previous 12 months.
Mortgage applications for refinance eased for the week ending August 19, but purchase apps were little changed after dropping by 3.9 percent for the prior week.
New orders for durable goods increased by a strong 4.4 percent in July, following a 4.2 percent drop in June. New orders for nondefense capital goods excluding aircraft (core orders) gained a healthy 1.6 percent.
Initial claims for unemployment insurance dipped by 1,000 for the week ending August 20, to hit 261,000. Continuing claims fell by 30,000 to hit 2,145,000 for the week ending August 13.
The good UI claims data suggests that August will be another solid month for job growth. The August jobs data is especially important given Janet Yellen’s speech today. We look for 175,000 jobs added, moderating after robust gains in June and July. If payroll gains remain very strong, say, north of 200,000, we believe that would significantly increase the likelihood of a fed funds rate hike on September 21.
Real GDP growth for the second quarter of 2016 was revised down slightly to a 1.1 percent annualized rate, from the previously reported 1.2 percent.
According to the University of Michigan, consumer sentiment eased slightly in August, but still remains within the “ok” range established this year.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 08-26-2016 1.