RTTNews - The parade of mixed numbers continued, making the domestic economic picture murkier. The lack of clarity was not unique to the U.S. alone, as forecasts by international agencies presented confounding pictures about the global economy as well. Even as the World Bank lowered its global growth forecast recently, the OECD raised its economic growth forecasts for the U.S., Japan and China by 1 percentage point. The OECD also changed its risk assessment, suggesting risks as being balanced from its earlier assessment, where risks were seen to be strongly on the downside.
The recent string of strong economic data from the U.S. suggests at least a modicum of improvement from severely impaired levels. Production remains poised to experience a rebound, as inventories have now been almost depleted and any additional demand has to be met by stepping up production. That said, labor market conditions are still far from seeing stabilization and this was evident from the jobless claims report released last week, which showed a rise in claims.
Meanwhile, Asian nations are moving towards a brisk recovery. In May, Japan's export volumes rose sharply, while data from South Korea showed that exports in the first 20 days of June suggested a solid improvement. According to Danske Bank, Asia will be a strong force in turning the global trade collapse.
Earlier today, Japan's Ministry of Economy, Trade and Industry released the industrial production report for May, showing a 5.9% jump in output, marking the third straight month of increases. The ministry's survey of domestic manufacturers revealed that industrial output would rise by 3.1% in June and by 0.9% in July. The datapoint supports expectations that recession in Japan may end soon and the economy will return to growth.
Last week, the FOMC decided along the expected lines, opting to hold interest rates unchanged at 0%-0.25%. The central bank did not make any changes to its qualitative easing measures, instead suggesting that as previously announced, it will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. The Fed also will be buying up to $300 billion of Treasury securities by autumn.
On economic conditions, the central bank noted that the pace of contraction has been slowing. The Fed also observed that financial market conditions have improved. While constrained by job losses, lower housing wealth and tight credit, household spending has been showing signs of stabilization. The central bank said firms have been successful in bringing inventories in line with sales, although they are continuing to reduce fixed investment and workforce.
The FOMC expressed confidence that concerted policy actions will lead to the resumption of a sustainable recovery due to concerted policy actions. The committee also said it expects inflation to remain subdued for some time due to substantial resource slack.
Housing market continues to show stagnant conditions, with sales of existing as well as new homes trending in a narrow range. Existing home sales came in at a seasonally adjusted annual rate of 4.77 million units in May, representing a 2.4% month-over-month increase from 4.66 million in April. Single-family sales rose 1.9% and multi-family sales climbed 6.1%, with both readings showing increases for the second straight month. The median existing home price fell 16.8% year-over-year to $173,000, although it rose 3.8% month-over-month. Existing home inventories fell to 3.798 million from 3.978 million in April, with the months of supply declining to 9.6 from 10.1 in April.
The proportion of foreclosure sales fell to 33% in May from around 45%-50% seen in recent months. According to economists, slightly improving affordability and distressed sales are helping to some extent, offsetting the weakness stemming from weak demand. Although going forward home sales will receive a lift from the up to $8,000 tax credit for first time buyers, rising mortgage rates are likely to act as a dampener.
At the same time, new home sales declined 0.6% in May from the previous month to a seasonally adjusted annual rate of 342,000. Sales rose in the Northeast, Midwest and West, but declined in the South. The months supply of new homes declined to 10.2 in May from 10.4 in April, with the decline coming about due to a decline in inventories to 292,000 in May. The median sales price of new homes declined 3.4% year-over-year to $221,600.
The GDP report did not spring in any surprise, with the final first quarter GDP report revealed that the economy shrank at a slightly slower than expected pace of 5.5%. Meanwhile, powered by stimulus payout, personal income climbed 1.4% month-over-month in May following an upwardly revised 0.2% increase in April. Disposable income climbed 1.6%. Consequently, the personal savings rate also rose to 6.9%. However, after the special factors were stripped, disposable income was up just 0.2%. At the same time, personal spending rose 0.3%, in-line with expectations. The personal consumption expenditure index rose at a 0.1% monthly rate and was up 1.8% annually.
Consumer sentiment is on an upswing, with the Reuters/University of Michigan's consumer sentiment index rising to 70.8 in June from the mid-month reading of 69 and May's 68.7. The index is now at its highest level since February 2008. The current conditions index rose 5.5 points, while the outlook index was down slightly.
The monthly non-farm payrolls report for June is likely to headline the economic reports in the unfolding week. Traders are also likely to keep an eye on the jobless claims report for the week ended June 27th, the Conference Board's consumer confidence index for June and the results of the Institute for Supply Management's manufacturing survey for June.
Additionally, the pending home sales report for May, the Commerce Department's construction spending report for May and the S&P Case-Shiller home prices survey for April are likely to in the spotlight. The ISM-Chicago purchasing managers' index for June and factory goods orders report for May could also offer some clues to the economic outlook. Traders may also evince interest in the Fed speeches scheduled for the week and the results of the 3-year and 10-year bond auctions by the Treasury Department, scheduled to be announced on Thursday.
Job losses are likely to moderate further in June, as jobless claims continued to see downside for much of June. The current recession has forced companies to lay-off workers in droves and this could lead to a faster return to job growth once production picks up. However, the bankruptcies of Chrysler and General Motors may have lead to a large number of temporary and permanent job losses. The jobless rate, being a lagging indicator, is likely to continue to rise at least a year following the end of the recession. Therefore, the unemployment rate could challenge the 1983's peak of 10.8%.
With most regional surveys suggesting improvement in June from the month-ago levels, one can expect the ISM's manufacturing index to rise further. Nevertheless, the index may still remain in recession territory. New orders should see a rebound, as most manufacturing sectors, with the exception of the beleaguered auto industry, are seeing a slowdown in the rate of contraction. Brian Bethune from IHS Global Insights is of the view that the third quarter will likely be the critical turning point for the manufacturing sector.
No significant economic report is due out on Monday.
The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM on Tuesday. Economists expect an 18.75% year-over-year decline in the 20-city composite house price index for April.
In March, house prices fell 18.70% year-over-year in March, which was slightly worse than the expected drop of 18.40%. On a month-over-month basis, house prices were down a more modest 2.17%. All 20 cities surveyed showed annual declines.
The Conference Board is scheduled to release its consumer confidence report for June at about 10 am ET on the same day. The survey, which is based on a survey of 5,000 US households, is expected to show that the consumer confidence index rose to 55.1 in June.
The consumer confidence index jumped 14 points in May to 54.9, while economists had expected a more modest improvement to 42.6. While the present conditions index rose to 28.9 in May from 25.5 in the previous month, the expectations index climbed 21.3 points to 72.3, marking the highest reading since December 2007.
The results of the Institute of Supply Management-Chicago's business survey for June are scheduled to be released at 9:45 AM ET on the same day. Economists expect the business barometer index based on the survey to come in at 38.5.
The business barometer index fell to 34.9 in May from 40.1 in the previous month, with the new orders index and the backlog of orders index contributing to significant weakness. While the news orders index slid 4.8 points to 37.3, the index of order backlogs fell 9.4 points to 26.3. The employment index weakened further, while the prices paid index continued to decline, suggesting broad deflation.
St. Louis Federal Reserve Bank President Jim Bullard is due to speak to the Global Interdependence Center at the Philadelphia Fed at 12 PM ET on Tuesday. Meanwhile, Kansas City Federal Reserve Bank President Thomas Hoenig is scheduled to give a speech to New York University Stern School of Business on bankruptcy and the economic crisis in New York AT 4:10 PM ET on Tuesday.
Also on tap is a speech by San Francisco Federal Reserve Bank President Janet Yellen, who is due to speak on the economy to the Commonwealth Club of California in San Francisco AT 9 PM ET on Tuesday.
The Mortgage Bankers' Association's purchase applications index, which measures applications at mortgage lenders is due to be released at 7 AM ET on Wednesday. On the same day, individual automakers will report their sales, comprising unit sales of domestically produced cars and light duty trucks.
The ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 AM ET on Wednesday. The report is usually released two days prior to the Labor Department's employment report.
The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET on the same day. Economists expect the index to show a reading of 44 for June.
In May, the index rose to 42.8 from 40.1 in April, with the May reading edging past the estimates at 42.3. Although it represented the highest reading since September 2008, it still suggests a contraction in activity. On a very positive note, new orders rose above 50 to 51.1 in May from 47.2 in April, while the index of backlog of orders climbed 7.5 points to 48. However, the employment index remained almost unchanged at 34.3. At the same time, the prices paid index soared 11.5 points to its highest level since September.
The Commerce Department's construction spending report to be released at 10 AM ET on Tuesday is expected to show a 0.5% decline in spending for May.
Construction spending rose 0.8% month-over-month in April, according to a report released by the Commerce Department. Private non-residential construction rose 1.8%, helping to offset the weakness in single-family and multi-family housing construction spending, which fell 6.7% and 2.6%, respectively. Public construction spending was down 0.3% in April.
Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET on the same day. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.
The pending home sales index rose 6.7% month-over-month in April, while economists had expected a mere 0.5% increase. The increase comes on the back of a 3.2% monthly gain in March and a 2% increase in February. The Northeast and the Midwest led the gains, showing increases of 32.6% and 9.8%, respectively. On an annual basis, the pending home sales index rose 3.3%.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET the same day.
The inventory report for the week ended June 19th showed that crude oil inventories declined by 3.8 million barrels to 353.9 million barrels, but they were still above the upper boundary of the average range.
Gasoline and gasoline stockpiles increased by 3.9 million barrels and 2.1 million barrels, respectively. While gasoline inventories were in the lower half of the average range, distillate inventories were above the upper boundary of the average range. Refinery capacity utilization averaged 86.3% over the four-weeks ended June 19th compared to 85.8% in the previous week.
The Labor Department is due to release its customary weekly jobless claims report for the week ended June 27th at 8:30 AM ET Thursday.
Initial claims for unemployment benefits rose 15,000 to 627,000 in the week ended June 20th from an upwardly revised figure of 612,000 for the previous week. Economists expect a decline in claims to 600,000 from the initially estimated figure 608,000 for the previous week.
The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, rose 500 to 617,250. Continuing claims, which measures people receiving ongoing unemployment help, rose 29,000 in the week ended June 13th to 6.738 million.
The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 AM on the same day. The report sheds light on the number of paid employees working part time or full time in the nation's business and government establishments, the number of hours worked in the non-farm sector, the basic hourly rate for major industries and the number of unemployed as a percentage of the labor force. Economists estimate that the U.S. economy lost 370,000 jobs in June and look for an unemployment rate of 9.6%.
Non-farm payroll employment fell by 345,000 jobs in May following a revised decrease of 504,000 jobs in April. Economists had expected a decrease of about 520,000 jobs compared to the decrease of 539,000 originally reported for the previous month.
The continued decrease in jobs reflected declines in employment in both the good-producing and service-providing sectors. While goods-producing sectors lost 225,000 jobs, service-providing sectors lost 120,000 jobs, with the rate of job declines slowing down due to addition of jobs in the education and health services segment.
At the same time, the Labor Department said that the unemployment rate rose to 9.4 percent in May. The increase came was bigger than the 9.2% rate expected by economists.
The Commerce Department is due to release its report on factory goods orders for May at 10 AM ET on the same day. Orders for manufactured goods are likely to have increased 0.2% in the month.
The durables goods orders report released last week showed an unexpected increase for May. Durables Goods make up the bulk of the factory goods orders. In May, new orders for manufactured durable goods rose 1.8% month-over-month in May to $163.9 billion following an upwardly revised 1.8% increase in April. Economists had looked forward to a 0.9% decline in durable goods orders for May from the originally reported 1.7% increase for April.
Machinery orders, which rose in three of the past four months, showed the biggest increase of 7.7%. However, shipments fell 2.1% and unfilled orders declined by 2%. Inventories at the end of the month were down 0.8%. Orders for non-defense capital goods orders, excluding aircrafts,- a key measure for capital spending climbed 4.8% following a 2.9% increase in the previous month. Shipments of this category of goods edged up 0.3%.
The markets are closed on Friday in observance of 'the Independence Day'.
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