New orders for durable goods increased 1.4 percent (nonannualized) in June, following a 2.3 decline in May. However, orders for nondefense capital goods excluding aircraft fell 0.7 percent in June and is now down 2.6 percent for the year. Shipments fell for the first time since February, decreasing 1.1 percent in June, and are down 0.8 percent on a year-over-year basis. Inventories rose for the sixteenth month in a row, rising 0.2 percent, but the inventory-to-shipments ratio remained virtually unchanged from 1.5 in May.
New single-family home sales fell 6.6% in June after falling 2.2% in May. Combined May and June’s declines have negated almost all of April’s large, 10.0% gain and bring the current sales pace down 40.0% from its historical peak. Inventories of new single-family homes, as measured by the current sales pace, increased slightly in June but remain just under the recent high seen in March.
Real GDP grew at an 3.4 percent annualized rate in 2007:IIQ, according to the advance estimate by the Bureau of Economic Analysis. The acceleration from first quarter's four-year low (0.6 percent) reflected an increase in exports, private nonresidential investment, a decrease in imports (which takes away from GDP growth), and a slowdown in losses to residential fixed investment. A deceleration in the rate of growth in personal consumption expenditures, from 3.7 percent to 1.3 percent in the second quarter, partly offset gains in other areas and was primarily due to a drop in demand for durable (8.8 percent to 1.3 percent) and nondurable (3.0 percent to -0.3 percent) goods. Business fixed investment posted the largest increase in five quarters, rising 8.1 percent. Also, the free fall in residential fixed investment show signs of slowing down, only falling 9.3 percent, compared to -16.4 percent average over the last four quarters. Exports grew strongly, from 1.1 percent annualized growth in the first quarter to 6.4 percent, while imports fell by 2.6 percent, the first decrease in imports since 2003:IQ.
The University of Michigan's Consumer Sentiment posted a healthy gain for July (90.4) after spending four months in the 80s. Consumer confidence is higher than the levels recorded last month and last year, which reflects a more favorable outlook on the economy in July. Optimism for employment and income defused reactions to climbing food and gas prices. However, long-term (5-10 year) inflation expectations increased slightly (to 3.6%) from last month (3.3%) and last year (3.2%), but are still in-line with the recent average. Short-term inflation expectations were unchanged from last month (4.2%) and up slightly from last year (3.8%).
As reported by the National Association of Realtors, existing single-family-home sales fell 3.8 percent in June, following May’s 0.5 percent decline. June’s decline brings the series down to its lowest level since late 2002 and 20.2 percent below its peak in September 2005. The median sales price of existing single-family homes increased 3.3 percent (to $230,100), the fifth consecutive monthly increase.
Total housing starts increased 2.3 percent in June, while single-family starts were effectively unchanged. Single-family starts are currently down 37.3 percent from their peak in January 2006 but have stabilized somewhat in recent months. Over the past five months, single-family starts have increased 2.5 percent. Permits for single-family homes, which some claim to be an indicator of future construction activity, fell 4.1 percent in June and have shown no real signs of stabilizing. Since peaking in September 2005, permits have steadily fallen 43.3 percent.
The Producer Price Index dropped 2.8 percent (annualized rate) in June, following four months of sharp growth including last month’s 11.4 percent jump. Large decreases in food and energy, falling 9.6 percent and 12.1 percent, respectively, led to an overall drop in the PPI. The core PPI (PPI excluding food and energy) rose 3.8 percent, following a 2.3 percent increase in May, and flat readings in March and April. Further down the production line indicators were mixed, with prices in core intermediate goods increasing 5.1 percent, their smallest increase since February, and prices of core crude goods falling 2.5 percent, the first drop for the series since November 2006.
Industrial production, affirming gains in the ISM manufacturing index and some regional FRB manufacturing reports, rose 6.8 percent (annualized rate) in June, after a downward revision to May’s slight decrease—from 0.5 percent to 1.5 percent. All three major industrial groups—-manufacturing, mining, and utilities—grew in June, led by a 7.2 percent spike in manufacturing output. Motor vehicles and parts production surged 35.0 percent in June, the largest jump since November 2006, making growth in the second quarter the highest since the third quarter of 2003. However, some industry analysts are reporting that auto makers may be ramping up current production due to uncertainty surrounding upcoming labor negotiations.
Total retail sales fell 10.1 percent (annualized) in June, following a slight upward revision to May’s 19.8 percent spike, but sales are still up 3.8 percent on a year-over-year basis. More than half of the plunge was due to autos, as sales growth excluding motor vehicle and parts dealers only fell 4.2 percent. Still, weakness in the residential sector affected June sales at furniture and home furnishing stores and building supply dealers, dropping 30.5 percent and 24.1 percent respectively. In fact, sales at furniture and home furnishing stores, which have expanded on a year-over-year basis since March 2003, dropped from May’s 3.1 percent growth to −1.8 percent in June. Outside the auto and housing areas, consumer spending seemed to show little strength, as sales at apparel and department stores were soft as well.
Nonfarm payroll employment rose by 132,000 in June, edging above an average forecast of 128,000. April and May payrolls were revised upward a cumulative 75,000 (to 122,000 and 190,000, respectively). The service sector showed strength in education and health services (+59,000), government (+40,000), and leisure and hospitality (+39,000), but there were pockets of weakness in retail trade (−24,000) and professional business services (−9,000). The goods producing sector lost only 3,000 jobs, as job gains in construction (+12,000) nearly counteracted continued losses in manufacturing (−18,000). 7,000 of the job gains in construction were from construction on buildings, while 5,100 of that was nonresidential.The unemployment rate was unchanged at 4.5 percent.
Real GDP growth in the first quarter of 2007 was revised up slightly from 0.6 percent (annualized rate) to 0.7 percent but remains the smallest quarterly growth rate since the the fourth quarter of 2002. The upward adjustment primarily reflects an upward revision in exports (from a decline of 0.6 percent to 0.7 percent).
Personal income rose 5.1 percent (annualized rate) in May, more than offsetting its 2.8 percent decline in April. Wages and salaries rose 5.5 percent, partially offsetting April’s 6.0 percent decline; however, recent fluctuations in the growth of wages and salaries reflect a statistical nuance associated with an adjustment for unusually large bonus payments and the exercise of stock options earlier this year. Nevertheless, while this month’s growth was a bit down from monthly growth over the past three quarters, it remains in line with longer-term growth rates. Real consumer spending was lackluster, rising only 0.8 (annualized rate) percent in May.
The Personal Consumption Expenditure Price Index (PCE) jumped 5.8 percent (annualized rate) in May. Most of this surge reflects rising food and energy prices: The PCE excluding food and energy prices rose a mere 1.3 percent. The 12-month growth rate in the PCE excluding food and energy prices ticked down from 2.0 percent to 1.9 percent during the month, its slowest growth rate since March 2004.
The University of Michigan’s Index of Consumer Sentiment, which has declined in five of the last seven months, dropped 3.0 points to 85.3 in June, reflecting deterioration in both the current economic conditions and consumer expectation components. Short-term average inflation expectations in late June indicate that households expect inflation to be a brisk 4.2 percent over the next year, while expectations of inflation over the next 5 to 10 years fell from 3.7 percent in May to 3.3 percent in June.
Total private construction spending increased an annualized 6.2 percent in May on top of a 1.1 percent gain in April. Private construction spending has now increased in three of the past four months after falling in each of the previous 10 months. Private residential construction spending fell an annualized 9.5 percent in May, its fifteenth consecutive decline, while private nonresidential construction increased 37.9 percent, its eighth consecutive increase.
The ISM manufacturing Index exceeded expectations, rising 1 point to 56 in June, its highest level since April 2006. The production and new orders indexes continued to rise, while the employment index and the inventories index declined during the month. The prices paid index fell for the second consecutive month, dropping 3 points to 68 in June; however, the index is still a bit above its average of 65 since the beginning of 2005.