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Weekly Economic and Financial Commentary: Will Global Growth Catch Up to the United States?

U.S. Review

The Housing Disconnect

  • Existing homes sales declined 0.7 percent to a 5.34-million unit pace in July. Total resales are now trending 1.5 percent below year-ago levels. Sales of new homes also fell, down 1.7 percent in July following a 2.4 percent drop in June.
  • Durable goods orders slipped 1.7 percent in July. Much of the decline occurred from an expected drop in nondefense aircraft orders. Ex-transportation, orders rose 0.2 percent.
  • The latest FOMC meeting minutes revealed that participants’ views of the economic outlook had strengthened, making a September rate hike increasingly likely.

The Housing Disconnect

The week was replete with data that underscored the divide between a sluggish housing sector and an overall improving economy, as both new and existing home sales again came in below expectations in July. Meanwhile, minutes for the most recent FOMC meeting revealed that the committee appears on track for a September rate hike. Despite volatility in the transportation sector, a pickup in core capital goods orders bodes well for third quarter business equipment investment.

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Existing homes sales declined 0.7 percent to a 5.34-million unit pace in July. Single-family sales fared slightly better and only experienced a 0.2 percent drop, while condos and co-ops fell 4.8 percent. Total resales have now declined on a monthly basis in each of the past four months and are trending 1.5 percent below year-ago levels. The parade of disappointing housing data continued with new home sales, which also came in below consensus and fell 1.7 percent in July. The monthly decline followed a 2.4 percent drop in June. Sales of new homes have now fallen in three of the past four months.

Several factors appear to be limiting home sales, but we doubt waning demand is one of them. Existing homes only lasted an average of 27 days on the market, slightly less than the 30-day average registered in July 2017. Fifty-five percent of the existing homes sold were also on the market for less than a month. Tight inventories are more of a concern. On a year-over-year basis, total inventories of existing homes remained essentially flat; however, this followed 37 consecutive months of declines. Home prices also remain high. The National Association of Realtors reported that the median home price for an existing single family home eased somewhat to $272,300, but this followed prices hitting a record high of $276,500 in June. Both the average and median home price for new homes also rose during the month.

The weather may have also dampened sales in July. The Northeast experienced an unusual amount of rain and saw sales of both new and existing homes drop sharply during the month. Parts of the South may have also been affected. However, home sales clearly remain on the slow track and the divide between the strengthening economy and sluggish housing market is a theme that should persist.

Topline durable goods orders slipped 1.7 percent in July. However, much of the monthly drop was in the transportation sector, as both civilian and military aircraft orders fell more than 34 percent. Excluding the volatile transportation component, there was fairly broad-based strength, as orders increased 0.2 percent, and nondefense capital goods orders excluding aircraft rose 1.4 percent. With orders in other categories still positive and unfilled orders of nondefense aircraft elevated, we maintain our call for real equipment spending to rise in Q3.

To cap the week, Fed Chair Powell gave a speech in Jackson H