Economic reports next week will be mixed. While May existing home sales are expected to jump, new home sales will plummet—this monthly volatility is related to the expiry dates on sales contracts relating to the new and existing homebuyers' tax credits.

On the plus side, core durable goods orders are expected to bounce back in May, and consumer confidence is expected to drift higher in June. Partly offsetting this, first-quarter real GDP is expected to be revised down, indicating even less forward momentum on final sales growth.

We expect the FOMC to keep a steady hand on the helm at the June 22–23 meeting, with no surprises—the Fed will vote to keep the target funds rate unchanged in the 0.00–0.25% range, while the "exceptionally low for an extended period" language will be retained. Arguments in favor of departing from this strategy in the near future have weakened substantially over the past two months, but we think a dissenting vote from Hoenig is still likely.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, June 22 – Existing Home Sales (May)

• IHS Global Insight: 6.11 Mil.
• Consensus: 6.20 Mil.
• Last Actual: 5.77 Mil. (Apr.)

What to Look For

• Existing home sales are expected to jump to 6.11 million as transactions related to the existing homebuyers' tax credit, which expired on April 30, are completed.

Implications

Based on the latest increase in the pending home sales index, we are expecting another strong increase in existing home sales for May, as buyers (who signed contracts in April) rushed to complete transactions before the original June 30 deadline for the homebuyers' tax credit (the completion deadline has since been extended to September 30). But the bigger the rise, the bigger the fall. By July, we expect sales to plunge below the 5.0-million threshold.

Wednesday, June 23 – New Home Sales (May)

• IHS Global Insight: 0.375 Mil.
• Consensus: 0.430 Mil.
• Last Actual: 0.504 Mil. (Apr.)

What to Look For

• Sales are expected to plummet by 26% as the new homebuyers' tax credit expired at the end of April.

Implications

New home sales jumped 49% during March and April combined. With the homebuyers' tax credit expiring April 30, sales will likely post their largest monthly percentage drop on record (data start in 1963). We project that sales will plummet 26%, to 375,000 units (annual rate).

Wednesday, June 23 – FOMC Rate Decision

• IHS Global Insight: 0.00–0.25%
• Consensus: 0.00–0.25%
• Last Actual: 0.00–0.25%

What to Look For

• The FOMC is expected to keep rates unchanged in the range of 0.00–0.25% range on June 23, and retain the "exceptionally low for an extended period" (EE) language.

Implications

While the economic recovery is still moving ahead, the employment picture remains extremely troublesome in terms not only of the persistently high unemployment rate, but also in the sharply longer duration of unemployment. Core CPI inflation remains below 1.0%, and well below the Fed's target of 1.5–2.0%—with potentially more downward pressure in the next few months. Beyond these domestic risks, the crisis in the Eurozone and the much lower level for the euro threatens further disinflationary shocks to the U.S. economy. While a repeat of Hoenig's dissenting vote to remove the EE language is in question, we think inertia will dominate and only one dissenting vote will be cast.

Thursday, June 24 – Durable Goods Orders (May)

• IHS Global Insight: -2.4%
• Consensus: -1.2%
• Last Actual: 2.8% (Apr.)

What to Look For

• Durable goods orders surged 2.8% in the preceding month of April because of higher aircraft orders, and should plunge in May because of volatile aircraft orders.
• Core durable goods orders should move up, indicating positive underlying momentum in business equipment and software investment.

Implications

Total orders should fall 2.4%, but orders other than aircraft should rebound. April orders for big-ticket items other than aircraft fell 1.1%, dragged down by coincident reversals in a host of machinery categories—May should see a 1.8% rebound. Core capital goods orders, which fell 2.7% in April because of machinery, should bounce back by an equal amount in May. The rebound marches on, although orders are being bounced around by noise in the monthly data. April was not as good as it looked on the surface, and May should be better than it will look on the surface.

Friday, June 25 – Real Gross Domestic Product (Third estimate, Q1)

• IHS Global Insight: 2.8%
• Consensus: 3.0%
• Last Actual: 3.0% (Second estimate, Q1)

What to Look For

• We expect the third revision of first-quarter GDP to take the growth rate down to 2.8%, from 3.0%.

Implications

We expect inventory accumulation to be revised up slightly, and net foreign trade and consumer spending on services to be revised down. If we're right, that would tilt the distribution of first-quarter growth even further towards inventories and away from final sales, which would intensify concerns about the future strength of the recovery once the inventory boost to growth begins to fade.

Friday, June 25 – Michigan Consumer Sentiment Index (Final Jun.)

• IHS Global Insight: 76.5
• Consensus: 75.5
• Last Actual: 75.5 (Preliminary Jun.)

What to Look For

• The Reuters/University of Michigan’s Index of Consumer Sentiment should average 76.5 in June, up slightly from 75.5 in early June and significantly higher than 73.6 in May.

Implications

Lower gasoline prices, recent stabilization of the equity markets, and seeming indifference to the European debt crises are supporting consumer sentiment.