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Economic data released this week was mixed, yet consistent with a moderate economic expansion in Q2.



Comerica Economic Weekly, June 21, 2019

June 21, 2019
By Robert A. Dye, Ph.D., Daniel Sanabria

Economic data released this week was mixed, yet consistent with a moderate economic expansion in Q2. The big news this week were changes by the Federal Reserve in its monetary policy announcement and revised forecasts on Wednesday. 

The Fed dropped the word “patient” from the policy announcement and adopted a more proactive stance for managing the economic outlook. The expected path of the fed funds rate, known as the “dot plot,” was revised down on Wednesday. Fed officials now expect to see a rate cut in the fed funds rate by the end of 2019.

Fed funds futures markets are pricing the probability of the first fed funds rate cut at the conclusion of the July 30-31 FOMC meeting at near 100%. However, there is less consensus as to whether the fed should do a 25 or 50 basis point rate cut at the end of July. The Fed has indicated that it is open to a future rate cut, but would like to see more evidence. If officials felt that the July meeting was not in play, they would need to talk down expectations of a rate cut in July very soon, otherwise they may risk an adverse surprise to the markets.

Existing home sales increased 2.5 percent in May to a 5,340,000 annual unit rate. Home sales saw a slight tailwind from lower mortgage rates this spring. The supply of existing homes for sale ticked up to 4.3 months in May. The median sales price of an existing home was up 4.8 percent year-over-year in May.

Housing starts decreased by 0.9 percent in May to a 1,269,000 annual unit rate. Single-family starts declined 6.4 percent in May. However, multifamily starts were up by 11 percent for the month. This is the third monthly double-digit gain in multifamily starts since February. Total permits were little changed in May, gaining just 0.3 percent for the month, to a 1,294,000 annual unit rate.

Builder confidence dipped in early June according to the National Association of Home Builders. The current  and six month outlook for single-family homes sales index components were down for the month. Overall homebuilder confidence is still up from December.

Total mortgage applications decreased by 3.4 percent for the week ending June 14. Refis saw a slight decline, down by 3.5 percent for the week, after gaining 46.5 percent the week before. Purchase apps also saw a modest pullback, decreasing by 3.5 percent. On a four-week moving average basis, refi apps were up a strong 60 percent over the previous 12 months. Purchase apps were up 5.5 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage increased to 4.14 percent.

The Conference Board’s Leading Economic Index was unchanged in May, following three consecutive monthly gains. Seven of the ten components were positive for the month. However, the May dip in stock prices and ISM new orders were major drags on the Leading Index. The Coincident Index increased by 0.2 percent in May, while the Lagging Index decreased 0.2 percent.

Surveys of manufacturing activity conducted by regional Federal Reserve banks were soft in June. The Empire State Manufacturing Survey’s headline index declined 26 points to -8.6 percent in June. This is the largest monthly decline on record for the index. The Philly Fed Manufacturing Survey diffusion index also moderated from 16.6 in April to just 0.3 in May. 

Initial claims for unemployment insurance decreased by 6,000 for the week ending June 15, to hit 216,000. Continuing claims were down 37,000, to hit 1,662,000 for the week ending June 8. Claims data remain positive as we move further into June.

For a PDF version of this report, please click here:  Comerica Economic Weekly, June 21, 2019

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