Last week’s economic reports were, once again, weaker than expected. Housing news was mixed, with industry sentiment remaining healthy but failing to improve while starts pulled back. On the other hand, sales of existing homes jumped, reversing a decline in the previous month.
This week’s data should give us a bigger-picture view, with looks at business orders; consumer confidence, income, and spending; the first estimate of first-quarter economic growth; and the minutes from the Fed's April meeting.
Last week: all about housing
Last week’s data revolved around housing, both the industry and the market:
• The National Association of Home Builders survey was stable, at 58, against an expected increase to 59. Despite falling short of expectations, it remains at a reasonably healthy level associated with consistent but slow growth.
• Housing starts also disappointed, with a decline of 8.8 percent in March, from 1.178 million to 1.089 million—more than reversing the previous month’s gain of 5.2 percent and falling below expectations of a smaller decline to 1.166 million.
• Building permits showed a similar drop, down 7.7 percent to 1.086 million.
Despite recent weak data, however, the long-term trends remain positive, with the 12-month average growth rate for single-family homes reaching the highest level since July 2008. On a year-to-year basis, starts are up 14.2 percent and permits are up 4.2 percent. Even with higher monthly volatility, there is still positive momentum.
That momentum showed up in sales of existing homes, which surprised to the upside, rising to 5.33 million from 5.08 million, an increase of 5.1 percent, and beating expectations of an increase to 5.28 million. The March report reversed a decline in the previous month and brought the 12-month average to the highest level since October 2007. Prices also continue to rise, up by 5.7 percent year-on-year.
A busy week ahead
New home sales disappoint. The stream of housing data continues this week with today’s release of new home sales. These figures also disappointed, down 1.5 percent to 511,000, following the prior month’s increase of 2 percent. In context, this is a relatively small miss (9,000 out of 520,000) and absolute sales levels remain healthy, but the lack of improvement validates the weak starts and permits data from last week.
Business orders expected to improve. Durable goods orders data will be released on Tuesday. After a weak result last month, substantial improvements are expected.
The volatile headline figure, which includes aircraft, is expected to rebound from a loss of 3 percent to a gain of 1.9 percent on an increase in Boeing orders, from 2 planes to 69.
The more representative core durable goods orders, which exclude transportation, are also expected to rebound, although more modestly, from a loss of 1.3 percent to a gain of 0.5 percent, thanks in part to an increase in orders from the defense sector.
Both numbers would suggest that the manufacturing sector continues to stabilize, and that would be very good news.
Consumer income expected to rise; confidence and spending weaker. Also on Tuesday, the latest reading of the Conference Board’s Consumer Confidence Index will be announced. It is expected to drop mildly, from 96.2 to 95.6, but to remain at a level consistent with continued spending growth. There is downside risk with this number, as gasoline prices have risen by more than 6 percent over the past months, and the University of Michigan confidence survey dropped by more. Even with a larger decline, however, this figure would still remain at growth levels.
For another look at consumers, the personal income and spending report will be released on Friday. Income growth is expected to increase from 0.2 percent to 0.3 percent on an increase in hours worked. There may be some upside risk with this number, but even matching expectations would be a very positive result.