Financial markets performed better over the preceding week, as second-quarter earnings in the non-financial sector were generally quite positive. Reports on the housing market, however, were relatively weak. A general sentiment that the economy is losing momentum was reinforced by the concerns Federal Reserve chairman Ben Bernanke expressed to Congress, so questions lingered about the sustainability of the earnings momentum in the second half of 2010.
The passage of the massive financial reform bill also raised concerns about the impact on bank revenues and profits under the new regulatory regime. The Senate finally passed a bill to extend unemployment benefits, and that will boost disposable income in the next few weeks as catch-up payments are made.
Indicators for the upcoming week are expected to be generally mixed. We expect a bounce back in home sales and consumer sentiment. However, durable goods orders are expected to have pulled back in June, while real GDP growth in the second quarter is projected at close to 3.0%, a very modest acceleration from 2.7% in the first quarter. The general expectation is that growth will slow down further in the third quarter.
KEY U.S. DATA RELEASES THIS WEEK
Monday, July 26 – New Home Sales (Jun.)
- IHS Global Insight: 0.309 Mil.
- Consensus: 0.315 Mil.
- Last Actual: 0.300 Mil. (May)
What to Look For
- Sales are expected to bounce back from record lows in May.
Implications
New home sales fell to an all-time low in May, payback from the second homebuyer's tax credit. The "payback period" is probably over and we are expecting sales to rise to 309,000 (annual rate).
Tuesday, July 27 – Conference Board Consumer Confidence (Jul.)
- IHS Global Insight: 54.0
- Consensus: 51.0
- Last Actual: 52.9 (Jun.)
What to Look For
- Look for a modest bounce back from the steep drop in June.
Implications
The Conference Board's Consumer Confidence Index is expected to bounce back slightly to 54.0. The sharp drop in the previous month was probably an overreaction to weakness in the stock market and the constant litany of bad news on the BP oil spill. That being said, consumer confidence has been dramatically shaken in the past couple of months and it may take some time to recover to more reasonable levels.
Wednesday, July 28 – Durable Goods Orders (Jun.)
- IHS Global Insight: -0.8%
- Consensus: 1.0%
- Last Actual: -0.6% (May)
What to Look For
- Durable goods orders fell 0.8% in June as the May spike in machinery orders (heavily turbines) likely reversed.
Implications
Durable goods orders probably fell 0.8% in June as the May spike in machinery orders (heavily turbines) likely reversed. Turbine orders are notoriously volatile and spiked 37% in May, and that was not the sole machinery category to show unusual strength in May. Boeing aircraft orders picked up a fair amount in June, but seasonal adjustment is expected to remove all of that gain.
Friday, July 30 – Real Gross Domestic Product, Advance estimate (Q2)
- IHS Global Insight: 3.0%
- Consensus: 2.5%
- Last Actual: 2.7% (Third estimate, Q1)
What to Look For
- Real GDP growth for the second quarter is expected to come in at 3.0%, slightly above the first quarter's 2.7%.
Implications
Compared with the first quarter, consumer spending growth was slower (we expect 2.3%, down from 3.0%), the inventory cycle provided little if any further support to growth, and foreign trade was a big drag (probably around 1.5 percentage point of GDP). Fixed investment was the big support to growth. Business equipment spending growth accelerated—although much of the spending went on imports—while nonresidential structures spending probably increased instead of declining, with oil and gas drilling still rising, outweighing a smaller decline in nonresidential building. Residential construction rose after a first-quarter fall—a temporary climb, promoted by the homebuyers' tax credit and better weather. Government spending was also a support for growth, through federal spending on defense and on the Census, and through state and local spending on structures (helped by stimulus funds).
The economy entered the second quarter with plenty of momentum, but exited with very little. We expect that growth in the third quarter will be slower than in the second. The second-quarter GDP figures will be accompanied by an annual revision of the national accounts back to 2007. We anticipate that the revision will show that the recession, in GDP terms, was deeper than previously estimated.
Friday, July 30 – Michigan Consumer Sentiment Index, final (Jul.)
- IHS Global Insight: 69.0
- Consensus: 67.0
- Last Actual: 66.5 (preliminary, Jul.)
What to Look For
- Consumer sentiment is expected to bounce back in the second half of July.
Implications
Sentiment is expected to have improved in the second half of July, as the stock market rebounded and the litany of bad news on the BP oil spill abated somewhat.
