Economic Indicators: Weekly Update for July 29, 2011

Every week the Research staff analyzes key data releases and explain what they mean for you and your business. In this update, we give the highlights of the most important data releases for the week of July 25-July 29, 2011, along with graphs that show the latest movement and overall trends.

At a glance, this table shows the forecast for some of the most pertinent weekly data for REALTORS® to keep in mind. This changes from week to week as new data becomes available. For the full forecast from the latest Pending Home Sales release, click here (PDF).

Highlights for Monday, July 25, 2011:

• There is slightly good news coming out of two regional branches of the Federal Reserve. The Dallas Federal Reserve district reported an increase in manufacturing activity in June, including hiring activity in July. The Chicago Federal Reserve district reported a slowing in contraction in manufacturing activity.
• Several of the regional Federal Reserve banks are attempting to gauge a timely measure, though qualitative, about economic activity in its respective regions. Because of the qualitative nature, thia data is not followed as closely.
• Gold and oil prices are shooting higher. It could be due to investors seeking shelter of hard assets ahead of the uncertain debt ceiling outcome. It could also be due to better prospects of economic growth later in the year since stock prices are also at high points. Finally, it could also be a reflection of an inflation hedge in light of a very loose monetary policy.
• Higher gold prices have virtually no economic impact, other than for those who want to buy or sell jewelry. However, oil prices have a direct impact. Higher oil prices mean slower economic growth. The initial positive impact of lower oil prices in releasing oil from the strategic petroleum reserve has largely gone away.

Highlights for Tuesday, July 26, 2011:

• A flurry of indicators were released today, but none produced a clear signal for the markets or economy.
• The 20-city Case-Shiller index was flat on a month-to-month basis (seasonally adjusted) after last month’s 0.4% improvement. This month’s statistic reflects sales from March, April and May. Compared to the same period in 2011, sales prices were 4.5% lower, even softer than the 4.2% gap from a month earlier. However, March, April and May of last year were the peak of the tax credit-induced sales surge, so prices then likely reflect this enthusiasm. Prices eased in the summer and fall of 2010, so the year-over-year numbers will look better in the coming months.
• Only Washington, DC reported stronger prices this year than the same time last year at 1.3%. Of the 20 metro areas covered, 9 reported stronger, seasonally adjusted prices relative to a month earlier. In short, price growth is a mixed bag at the local level which is reflected in the relatively flat headline figure.
• Consumer Confidence inched up 1.9 points to 59.6 in July. The outlook on current conditions slipped, while expectations for improvement in the future rose. Consumers were pessimistic on the current job and business front, but saw some improvement on the horizon.
• New homes sales were down 1.0% in June compare to May of this year (seasonally adjusted), but were 1.6% stronger than in June of 2010. The median home price for new homes is up 7.2% relative to June of 2010, likely reflecting a tighter stock and larger homes selling than last year when the $8,000 Federal tax credit was in effect. Steady sales and little construction dragged the months supply down to 6.3 from 6.4 in May, well below the 8.2 months in June of 2010.
• New homes sales continue at a steady pace, which should not change as long as home construction is restrained by large supplies of foreclosed and short-sale properties as well as the low prices for existing properties. Price growth appears to be bottoming out, a pattern that will gain traction later this summer and fall as last year’s strength gives way to this year’s stability. However, consumers need more good news. High gas prices, budget concerns in the news, and stagnant job creation hurt consumer confidence and sales on small and large goods alike. Home sales and prices are steady, but tenuous. Consumers, like businesses, need a clear direction.

Highlights for Wednesday, July 27, 2011:

• Mortgage applications declined 5.0 percent for the week ending July 22, following a slight increase in interest rates on 30-year fixed mortgages from 4.54 percent to 4.57 percent.
• The seasonally adjusted Purchase index declined 3.8 percent from the previous week.
• Refinancing activity decreased 5.5 percent from the prior week.
• Though the index does not include cash purchases, which accounted for 30.0 percent in June of this year, the continuing sideway movement (and not upward movement) suggests home sales will not rebound in any meaningful way in the near term. Note that data measures applications only and not approvals, and it is unclear on the direction of the approval rate. Mortgage accessibility has been very tight, but has it become slight less onerous or even more stringent? That is unknown in the data.
• Separately, new orders for manufactured durable goods declined 2.1 percent in June, to $192.0 billion. The figure represents a second decline in the last three months. Based on this data the second quarter GDP growth is likely to be well under 2 percent, which will correspond to an unchanging unemployment rate or slight upward drift.
• Transportation equipment orders, which led the earlier growth, declined the most—8.5 percent.
• Businesses continue to ramp up their inventory levels—inventories of durable goods rose 0.4 percent, the eighteenth consecutive monthly gain. Higher inventory could mean slightly less production activity in the months ahead.

Highlights for Thursday, July 28, 2011:

• The past week suggested some improvement in the labor market. New jobless claims decreased by a significant 24,000 to 398,000. This was the first reading below 400,000 since April. Economists generally estimate that once new claims fall below 400,000, the economy is creating more jobs than losing.
• The four-week average also dropped by a sharp 8,500 to 413,750. While still above the 400,000 level, this is almost a 15,000 improvement from the previous month. Continuing claims have also been falling, with 17,000 fewer claims in the middle of July, with total continuing jobless claims currently at 3.703 million.
• The largest increases in initial claims were in California, Georgia, North Carolina, South Carolina, and Florida while the largest decreases were in New York, Minnesota, Michigan, Ohio, and Pennsylvania. Assuming that jobless claims continue to trend down, NAR expects about 1.5 to 2 million net new jobs in the next 12 months. If claims remain stubbornly above 400,000, only 1 to 1.5 million jobs will be created on net.

Highlights for Friday, July 29, 2011:

• GDP grew at a rate of 1.3 percent in the second quarter. This is below trend growth of 2.5 to 3.0 percent and also below growth of 1.5 to 2.0 percent that would be needed for a stable unemployment rate. First quarter growth was revised down from 1.9 percent to 0.4 percent.
• GDP estimates are typically revised twice after the initial release and these revisions tend to be only 0.1 to 0.2 percent on average. Every July the BEA undertakes a more comprehensive revision of data, and this contributed to the large downward revision of the first quarter data.
• These revisions don’t change what happened, but they may change how we understand the severity of the recent recession and the volatility of the recovery. These revisions also indicate how difficult it is to accurately measure economic variables.
• Consumer sentiment data, also out today, show that while June was a better month than May for current economic conditions, overall consumer sentiment is lower because of dampened expectations. According to the survey release, “The current level [of the expectations subindex] is halfway between its January 2007 peak (87.6) and its June 2008 trough (49.2); neither positive enough to signal robust growth nor negative enough to signal a renewed downturn.”
• Consumers also indicated some concern about inflation gradually eating away at their quality of life. While home owners are not protected against inflation of consumer goods, those with a fixed-rate, fully amortizing mortgage are protected against increases in the largest portion of their monthly housing payment.