Existing Home Sales
Existing home sales have been flat and results for June are on the low end of expectations, at a 5.380 million annualized rate for a 0.6 percent decline from May’s 5.410 million. Year-on-year sales in June were down 2.2 percent.
For home sellers, the good news in the report is strength in prices, up 4.5 percent for the median to $276,900 and a 5.2 percent year-on-year gain. For buyers, the good news is a 4.3 percent rise in the number of homes on the market, at 1.950 million and, relative to sales, a gain to 4.3 months from 4.1 months.
Yet the sales results are nevertheless very soft with only the South, at a mere 0.4 percent, in the year-on-year plus column. Watch for new home sales on Wednesday which have been doing better than resales though a fractional decline is Econoday’s consensus.
Strong gains for the discretionary categories of autos and restaurants and a big upward revision to May highlight the June retail sales report. Total sales rose an as-expected 0.5 percent in June with May, in what will be a positive for second-quarter GDP estimates, revised a sharp 5 tenths higher to an outsized 1.3 percent jump.
What’s striking is that autos were very strong in both June and May, up 0.9 and 0.8 percent respectively, with restaurants really showing unusual acceleration, up 1.5 and 2.6 percent in the two months. Gains here point to new confidence among consumers and are consistent with the strength underway in the labor market.
Sales at health & personal care stores were unusually strong in June, up 2.2 percent following a series of very strong gains in the 1 percent range. Nonstore retailers, in a sign of e-commerce strength, rose 1.3 percent in June and continue to make ground compared to other components. Gasoline stations, boosted by high gas prices, saw a 1.0 percent rise in June sales following a 3.0 percent spike in May. Building materials, at plus 0.8 percent in June, and furniture store sales, up 0.6 percent, are both positive indications for residential investment.
Consumer spending in May was at first modest overall on weakness in spending on services though today’s upward retail revision will offer a major lift for May’s final result. And unless services prove flat again, June — based on today’s report — should prove a very strong finish for the second-quarter economy.
The government’s deficit wasn’t quite as deep as expected in June, at $74.9 billion vs Econoday’s consensus for $91.0 billion. Nine months into the government’s fiscal 2018, the deficit totals $607.1 billion and is up significantly from a $523.1 billion at this time last year. Tax receipts this fiscal year are up 8.9 percent for individuals, at $1.305 trillion so far, and down 27.6 percent for corporations, at $161.7 billion. Customs duties so far this fiscal year, which is something of course to keep an eye on given widening tariffs, are $28.3 billion for a $3.1 billion gain. On the spending side, defense spending is up 5.5 percent at $497.2 billion.
May proved to be a good month for manufacturing after all as factory orders rose 0.4 percent vs Econoday’s consensus for no change. Durable orders did slip 0.4 percent on an expected downswing in aircraft orders which otherwise have been strong and also on supply snags tied to a fire at an auto supplier. Orders for nondurables, the new data in today’s report, proved very strong on energy products, rising 1.1 percent on the month on gains for petroleum and coal.
Solid news comes from capital goods where core orders (nondefense ex-aircraft) rose a respectable 0.3 percent on top of the prior month’s 2.0 percent surge. Shipments for this reading in May, which are inputs into GDP business investment, are revised higher from last week’s advance data, up 3 tenths from the initial reading to a gain of 0.2 percent (in an offset, April’s shipments are revised 2 tenths lower to what is still a very strong 0.8 percent gain).
Orders for steel, where tariffs are in effect, slipped in May after rising strongly the prior two months with aluminum orders extending a strong 3-month run. Inventories for the metals are building strongly. A major positive in this report is a fourth straight strong build for total unfilled orders, up 0.5 percent which hints at strength for factory payrolls in Friday’s employment report.
This report overshadows a decline in the Federal Reserve’s measure of manufacturing production, one skewed lower by a cut in factory hours tied to the auto sector snag, and it closes the book favorably on May. Advance factory data so far in June have been mostly strong including yesterday’s ISM report and month-end upgrade for the manufacturing PMI. Tariffs and the risk of trade disruptions aside, the factory sector is a major driver right now for the 2018 economy.