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U.S. economic indicators from this week were mixed. Today’s GDP print for Q2 was a cause for celebration for the Trump Administration, but home sales for June w



Comerica Economic Weekly July 27, 2018

July 27, 2018
By Robert A. Dye, Ph. D., Daniel Sanabria

U.S. economic indicators from this week were mixed. Today’s GDP print for Q2 was a cause for celebration for the Trump Administration, but home sales for June were sobering.

Real gross domestic product increased at a 4.1 percent annualized rate in Q2, about where we expected. Consumers did their part, increasing real spending at a 4.0 percent annual rate, after a nearly flat first quarter. This is the strongest acceleration in consumer spending since the end of 2014, coinciding with comprehensive tax reform. Business investment was solid, increasing at a 7.3 percent annualized rate in Q2, after a strong 11.5 percent gain in Q1. Surprisingly, real inventories were a drag in Q2, declining by $6 billion ($2012) and subtracting a full percentage point off of headline GDP growth. Real exports accelerated in Q2, growing at a very strong 9.2 percent annual rate while imports bumped up at a 0.5 percent annual rate. Net trade added 1.1 percent to real GDP growth in Q2. Total government spending increased at a 2.1 percent annual rate in Q2, driven by a strong 5.5 percent gain in federal defense spending.

New orders for durable goods increased by 1.0 percent in June after easing through April and May. Most categories were positive for the month.

Initial claims for unemployment insurance increased by 9,000 for the week ending July 21, to hit 217,000. This is still a very low number, indicating tight labor market conditions. Continuing claims for the week ending July 14 fell by 8,000, to hit 1,745,000, also a very low number.

New home sales fell by 5.3 percent, to a 631,000 unit annual rate in June. This was the weakest seasonally adjusted sales rate this year, and the weakest since October 2017. The Northeast saw big gains, up 36.8 percent for the month. The Midwest lost 13.4 percent. The South was down 7.7 percent, and the West saw its third consecutive monthly decline, down 5.2 percent. The months’ supply of new homes ticked up to 5.7 months’ worth. This should help new home sales for the rest of the summer. The median sales price of a new house in June was down 4.2 percent over the previous 12 months, not accounting for size differences in the mix of houses sold.

Existing home sales eased by 0.6 percent in June, to a 5,380,00 unit annual rate. This was a just a small drop in June but it was the third consecutive monthly decline. Sales in the Northeast gained 5.9 percent. Midwest sales were little changed, up 0.8 percent for the month. The South lost 2.2 percent in its fourth consecutive monthly decline. The West lost 2.6 percent, also its fourth consecutive monthly decline. The inventory of existing homes for sale increased to a still-tight 4.3 months’ worth in June. The median sales price of an existing home was up by 5.2 percent in June over the previous 12 months.

Mortgage applications eased by 0.2 percent for the week ending July 20. Purchase apps lost 1.0 percent while refi apps gained 0.9 percent. Purchase apps are still up 2.3 percent over a year ago on a four-week moving average basis. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage remained at 4.77 percent.

The European Central Bank left monetary policy unchanged at the meeting ending July 26. Mario Draghi, reiterated the central bank’s commitment to winding down asset purchases by the end of 2018.

For a PDF version of this report, click here: Comerica Economic Weekly July 27 2018

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