GDP Bloomed During the Spring, Home Sales Sputtered: July 23 -27

GDP grew at its fastest pace in nearly four years this past spring. Here are the five things we learned from U.S. economic data released during the week ending July 27.

#1Q2 was a good quarter for economic growth. The Bureau of Economic Analysis’ first estimate of second quarter 2018 gross domestic product (GDP) shows 4.1 percent growth on a seasonally adjusted annualized basis. This was the best quarter for GDP since the third quarter of 2014 and up from a revised 2.2 percent annualized growth rate during Q1. Most GDP components made positive contributions during Q1, led by a surge in personal consumption expenditures (adding 269-basis points to GDP growth during the quarter), net exports (+106-basis points, although some of this is believed the result of exporters moving soybeans and other goods out of the U.S. before trade tariffs take effect), nonresidential fixed investment (+94-basis points), and government expenditures (+37-basis points). Drags on Q2 GDP included a contraction in private inventories (costing one full percentage point in GDP growth) and tepid growth in fixed residential investment (i.e., housing, costing four-basis points). The BEA will revise its estimate of Q2 GDP twice over the next two months.GDP Contributors 072718

#2Economic activity accelerated during June. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic measures, surged by 88-basis points during the month to a reading of +0.43. The three-month moving average, which the Federal Reserve Bank of Chicago views as a “more consistent view of national economic growth,” added six basis points to a reading of +0.16. The CFNAI is indexed so that a 0.00 reading reflects economic growth at its historical average. Hence, a positive CFNAI indicates above average economic growth. Forty-five of the 85 economic indicators made positive contributions to the CFNAI during the month. Rebounding strongly from May were indicators related to production, the contribution from which surging from -0.56 to +0.36. Also showing improvement were the components tied to sales/orders/inventories, growing by three-basis points to +0.06. Slipping slightly were indicators linked to employment (off three-basis points to +0.08) and personal consumption/housing (down two-basis points to -0.06).

#3Home sales slowed in June. Sales of previously owned homes declined 0.6 percent during the month to a seasonally adjusted annualized rate of 5.38 million units. This was the third consecutive monthly decline for the National Association of Realtors’ data series, leaving existing home sales 2.2 percent under its year-ago reading. Sales slumped during the month in the West (-2.6 percent) and South (-2.2 percent) but improved in both the Northeast (+5.9 percent) and Midwest (+0.8 percent). Among the four Census regions, only in the South were existing home sales up over the past year. Inventories loosened a bit, growing 4.3 percent to a still tight 1.95 million units (the equivalent to a 4.3 month supply). The median sales price of $276,900 was up 5.2 percent from a year earlier. The press release blames softening sales on a lack of inventory of homes that is keeping home prices “elevated.”

New home sales fell 5.3 percent during June to a seasonally adjusted annualized rate of 631,000 units, per the Census Bureau. Even with the decline, new home sales have grown 2.4 percent over the past year. New home sales slowed in three of four Census regions during the month, with the Northeast being the exception. Homebuilders had 301,000 homes available for sale at the end of June, up 1.7 percent from May and 10.3 percent from a year earlier. This was the equivalent to a 5.7 month supply.

#4Durable goods orders rebounded during June. The Census Bureau estimates new orders for manufactured goods soared 1.0 percent during the month to a seasonally adjusted $251.9 billion. New orders for transportation goods jumped 2.2 percent, led by a 20.2 percent bounce in defense aircraft orders, a 4.3 percent gain in civilian aircraft orders, and a 4.4 percent increase in motor vehicle orders. Net of transportation goods, core durable goods orders grew 0.4 percent. Increasing during the month were new orders for electrical equipment/appliances (+1.5 percent), computers/electronics (+0.6 percent), machinery (+0.2 percent), and fabricated metal products (+0.1 percent). Meanwhile, new orders for primary metals slowed 0.4 percent. New orders for nondefense capital goods net of aircraft—a proxy for business investment—increased 0.6 percent during the month.

#5Consumer sentiment held steady in July. The University of Michigan reports that its Index of Consumer Sentiment slipped by 3/10ths of a point to a seasonally adjusted reading of 97.9 (1966Q1=100). Note that this was an 8/10ths of a point improvement from the preliminary July reading published a few weeks ago and a 4.5 point gain from the same month a year earlier. The current conditions index shed 2.1 points during the month to a reading of 114.4 (July 2017: 113.4) while the expectations index added 7/10ths of a point to 87.3 (July 2017: 80.5). The press release noted that Americans remained confident “due to favorable job and income prospects” even as they expect “higher inflation and higher interest rates.” A potential warning sign is the growing percentage of survey respondents expressing concerns about the impact trade tariffs may have on business conditions and their personal finances. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 21, 2018, First-Time Claims, seasonally adjusted): 217,000 (+9,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-10.7% vs. the same week a year earlier).
FHFA House Price Index (May 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. April 2018, +6.4% vs. May 2017.
Bankruptcy Filings (June 2018, 12-month Bankruptcy Filings): 775,578 (-2.6% vs. 12-month period ending June 30 2017).

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.


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