Economic Notes: July 28, 2014


Written by: Jon McGraw

  • Economic data was mostly focused on inflation and housing:  CPI was up marginally, while housing stats were mixed—remaining below trend for an economic recovery.
  • Stock markets were a mixed bag, with larger-cap stocks performing a bit better than small cap, although very sector-dependent.  Bonds were mixed as well, due to a flattening of the yield curve on the week.

(+) Durable goods orders for June increased +0.7%, which outperformed the expected gain of +0.5%.  Removing cyclical defense items and aircraft, core goods orders were expected to gain a similar +0.5% range, but rose a stronger +1.4% for the month.  However, a revision downward for May offset a bit of this.  Core shipments, however, fell -1.0% on the month, bucking expectations of a positive +1.3%, along with a half-percent downward revision for May as well (the shipments versus orders distinction is somewhat important as the former is included in the Commerce Department’s GDP calculation).  Machinery and motor vehicle shipments fell -2% in June, which contributed in large part to the decline.  Although not as significant, computers/electronics orders and shipments were also down.

(0) The consumer price index for June rose as anticipated, up +0.3% and on par with forecast.  The headline portion contained a +1.6% rise in energy prices, while food prices flattened after several months of gains, as improved weather and expected harvest conditions appeared to filter through.  Removing food and energy impacts, core CPI rose +0.13%, which was slightly below the expected +0.2%.  The pace of inflation in shelter (mostly in hotel, as rents were on pace with prior months and higher than headline inflation at +2.6% over last year).  Medical care services also slowed a bit last month relative to trend.  Year-over year, headline and core CPI increased +2.1% and +1.9%, respectively, which is just below the Fed’s target due to construction differences between CPI and the PCE deflator index they prefer.  Interestingly, measured deflation probabilities remained at zero, where they’ve been since mid-2013 after ‘spiking’ at 12%.

(+) The FHFA house price index for May gained +0.4%, which outperformed expectations by two-tenths of a percent and brought the year-over-year increase to +5.5%.  The most significant regions were West South Central (TX/LA) and Mid-Atlantic, each gaining just over +1%.

(+) Existing home sales for June gained +2.6% to just over 5 million seasonally-adjusted annualized units, which outperformed consensus calling for a gain of +1.9%, and was coupled with an upward revision for May.  All four key regions saw gains, and the average sales price for an existing sale was $223,300.  All-cash sales, a metric that roughly tracks non-owner-occupied investor activity, remained at about a third of all buys, which was close to where it was a year ago but foreclosure activity has also decreased, removing some of the quick-gain speculative element.  While an improvement, these levels are roughly ¾ of ‘normal’ housing market pace, so this remains a lagging component of the current recovery.

(-) New home sales for June lost some prior month momentum, coming in lower than forecast with a drop of -8.1% (to 406k, seasonally-adjusted annualized) compared to an expected decline of only -5.8%; additionally, sales were revised downward for several prior months.  The June declines were widespread, in all four national regions, although the West fell a mere -2%, while sales dropped -20% in the East.  Accordingly, the months’ supply of homes rose six-tenths to 5.8 months and the median sales price rose 5% from a year ago to $273,500.  Builder inventory also rose +8k to 197k (the biggest piece being in the ‘not started’ category), the highest in almost four years, which could be a promising sign for coming months.

(+) Initial jobless claims for the July 19 ending week fell more than expected to 284k, compared to 307k expected, representing a new post-recession low.  Continuing claims for the July 12 week came also lower, to 2,500k—10k lower than expected.  This is only one week, granted, so future-week conformation is important, but the sub-300k is what many economists have been expecting/hoping for.  Claims are an important real-time economic indicator.

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