Strength in consumer spending was shaved slightly while contraction in residential investment deepened slightly, factors however outweighed by upward revisions to both nonresidential fixed investment and government purchases with revisions to inventories and net exports also slightly favorable. The net result is a 2 tenths upward revision to second-quarter GDP to a 4.2 percent annualized rate.
Consumer spending is now at a 3.8 percent growth rate vs 4.0 percent in the first estimate. Spending on both durables and non-durables was lowered, to a still enormously strong 8.6 percent for the former and to 3.7 percent for the latter, with spending on services unchanged at 3.1 percent.
Residential investment was at minus 1.1 percent in the first estimate and is now at minus 1.6 percent in the second estimate. Nonresidential fixed investment gets a sizable 1.2 percentage point upgrade to an enormously strong 8.5 percent with components for equipment, now at 4.4 percent, and intellectual property, at 11.0 percent, both revised higher.
Inventories subtracted a little less while net exports added a little more. Government purchases are upgraded 2 tenths to a 2.3 percent growth rate.
Price readings are little changed with the overall index steady at an elevated 3.0 percent with the core 1 tenth higher at 2.8 percent. These readings had been subdued before shifting higher in the second quarter underscoring the risk of overshooting by the Fed.
The second quarter, in fact, was very strong led by consumer spending, where gains reflected strong demand for labor and also this year’s tax cut, and also by business spending which has been getting a lift from this year’s corporate tax cut. Exports were also very strong in the quarter.
The early outlook right now for the third quarter is mixed as goods exports sunk back in July in a negative offset by what looks to be a sharp rise in July inventories. Initial indications on consumer spending from the July retail sales report are positive. Watch for more third-quarter GDP inputs, including for inflation, in Thursday’s personal income & outlays report for July.
New Home Sales
The headline shows a decline but the message from the July new home sales report is nevertheless mostly positive. New home sales slipped 1.7 percent in the month to a 627,000 annualized rate that misses Econoday’s consensus by 22,000 and the Econoday’s low estimate by 3,000. Revisions are neutral with June revised 7,000 higher to 638,000 but with May revised 12,000 lower to 654,000.
Now the good news. Supply moved into the market, up 2.0 percent to 309,000 new homes for sale which is the best showing since 2009. More homes for sale gives buyers more choices in what will be a likely positive for sales in the coming months. Relative to sales, supply is at 5.9 months vs 5.7 and 5.5 in the two prior months.
Another positive is a rise in prices, up a sharp 6.0 percent on the month to a median $328,700 for what is still, however, a modest 1.8 percent year-on-year increase.
Regional data show both the West and Midwest posting strong monthly gains with yearly rates at 18.5 percent and 18.2 percent respectively. The yearly rate for the South is at 17.2 percent with, however, the Northeast, which is by far the smallest region for new housing, down nearly 50 percent.
The overall year-on-year rate of growth is at 12.8 percent which if sustained would point to a badly needed uplift for the housing sector in general going into the second-half of what has been a very subdued 2018.
Sales are still up Year over Year July 2017 roughly 550,000.
American industrial production is up and shows no signs of slowing down. Our overall output was up 0.7% in each of the months of March and April. These statistics come to us even with a fall in vehicle production by 1.3% in the month of April. Our manufacturing output does not look to be waning anytime soon. However, the threat of tariffs and our current looming trade war can greatly affect America’s overall industrial production significantly.
Continuing strength is evident from today’s jobless claims data. Jobless claims data where initial claims for the August 4 week were below the Econoday consensus range at 213,000. The 4-week average was down 500 to 214,250. Continuing claims in lagging data for the July 28 week were up 29,000 to 1.755 million with this 4-week average down 4,000 to 1.742 million. The unemployment rate, like all the readings in this report, was very low, at only 1.2 percent.
ADP Employment Report
ADP has underestimated the strength of the last two employment reports making perhaps today’s much higher-than-expected 219,000 result for July a noticeable indication of strength for Friday’s report. ADP’s estimate compares with a 184,000 consensus for July private payrolls.