Is the housing market recovery still a pipe dream? The fears intensified following the release of June's housing market reports, which suggested a loss of momentum. Existing home sales, new home sales and pending home sales all weakened from the month-ago levels. The softness brings in the premonition that the debt travails of Europe are slowly nipping off the nascent housing market recovery in the bud. If we add to this the alarming fiscal cliff facing the U.S., economic fears intensify manifold.
That said, leaders and central bank officials have been promising help and a lot of hand holding to prevent any break-down of economic activity. Last week, the European Central Bank president Mario Draghi reaffirmed his commitment to the stability of the euro. A joint statement released over the weekend stated that German Chancellor Angela Merkel and Italian Prime Minister Mario Monti will do everything to protect the eurozone and swiftly implement measures agreed by European leaders in June.
The markets have been receiving a sentimental lift from these commitments despite the severity of the debt crisis. The U.S. Fed may also be forced to act despite having very little ammunition in its war chest. According to BMO Capital Markets, if the Fed opts for more stimuli such as mortgage back securities purchases, the housing market slackness could well be a major reason.
The Commerce Department said last week that U.S. new home sales came in at a seasonally adjusted annual rate of 350,000 in June, down from 382,000 in May. This represented the lowest level since January. Sales plunged the most in the North.
Inventories as measured in terms of the months of supply rose to 4.9 months from 4.5 months in the previous month. The median price of a new home declined 3.2 percent year-over-year and fell 1.9 percent from the previous month.
Meanwhile, the National Association of Realtors reported that its pending home sales index fell 1.4 percent month-over-month in June, while the previous month's increase was downwardly revised by 0.5 percentage points to 5.4 percent. Pending home sales declined in the North, the Midwest and the South, while sales rose in the West.
The FOMC meeting and the monthly non-farm payrolls report are the closely watched economic events of the unfolding week. Traders may also focus on the Commerce Department's personal income and spending report for June, the results of the Institute for Supply Management's manufacturing and service sector surveys, the ISM-Chicago's manufacturing survey, the ADP's private sector payrolls report, the Conference Board's consumer confidence index for July and the weekly jobless claims report.
The Labor Department's employment cost index for the second quarter, the S&P Case-Shiller house price index for May, monthly auto sales for July, the Commerce Department's factory goods orders for June and announcements concerning the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
The FOMC meeting is unlikely to result in any policy move, as the fed funds target rate is at extremely accommodative levels. That said, Chairman Ben Bernanke had suggested that the central bank will discuss all policy options before them at the August meeting. BMO Capital Markets is of the view that it is only a matter of time before the central bank acts again, as the unemployment rate continues to remain elevated.
The non-farm payrolls report is expected to suggest a lackluster hiring environment, weighed down by the toned down demand caused by the eurozone crisis and the fiscal cliff facing the U.S.
With most of the regional manufacturing surveys suggesting a modest improvement in manufacturing conditions in July, the ISM's national survey may show that its manufacturing index moved back into expansion territory. The index slipped below the '50' level in June.
The personal income and spending report may show that personal income grew modestly, as a modest pick up in average work hours and average hourly earnings offset the impact of the weak pace of hiring. Given the fact that retail sales for three straight months, personal spending may see some slackness.
The results of the manufacturing survey by the Dallas Federal Reserve are due at 10:30 am ET. Economists expect the index to drop to 2.5 in July from 5.8 in the previous month.
The Federal Open Market Committee, the monetary policy-setting arm of the Federal Reserve, is due to meet for a 2-day meeting beginning Tuesday.
The Bureau of Economic Analysis is due to release its personal income & outlays report for June. Economists expect the report, which is due out at 8:30 am ET, to show that personal income rose 0.4 percent, while personal spending is expected to have edged up by 0.1 percent.
U.S. personal income increased by $25.4 billion or 0.2 percent for May, with disposable incomes increasing by the same 0.2 percent margin. Consumer spending, known more formally as personal consumption expenditures, decreased by $4.7 billion for the month, though, because that represents a decrease of less than 0.1 percent.
The Labor Department will release its employment cost index for the second quarter at 8:30 am ET. The consensus estimates call for a 0.5 percent increase in the index compared to 0.4 percent growth in the first quarter.
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. Economists expect a seasonally adjusted 0.5 percent month-over-month increase in the 20-city composite house price index for May. The index is expected to have declined by 1.4 percent on a seasonally unadjusted basis compared to the previous year.
The 20-city composite house price index rose 0.67 percent month-over-month in April and was down a less than expected 1.9 percent from a year ago. Prices increased relative to the previous month in 17 of the 20 cities surveyed.
The results of the Institute of Supply Management-Chicago's business survey for July are scheduled to be released at 9:45 am ET. Economists expect the business barometer index based on the survey to edge down to 52.5.
The business barometer rose to 52.9 in June from 52.7 in May. The new orders index slipped 1 point to 51.9 and the order backlogs index receded 4 points to 42.2. Meanwhile, the employment index rose 3.4 points to 60.4 and the production index climbed 7 points to 57.
The Conference Board is scheduled to release its consumer confidence report for July at 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index declined to 61.5 in July.
Consumer confidence declined by more than expected in June. The consumer confidence index fell 2.4 points to 62 in June. The expectations index declined by 5 points to a 7-month low of 72.3, while the present situation index rose 1.7 points to 46.6.
Individual automakers are scheduled to release their monthly U.S. sales results for June. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 14 million for July, down from 14.1 million last month.
The ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET. The consensus expectations are for an addition of 120,000 jobs by the sector in July following an addition of 176,000 jobs in June.
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. Economists expect the index to show a reading of 50.1 for July.
Manufacturing conditions activity contracted in June. The manufacturing purchasing managers' index slipped to 49.7 in June from 53.5 in May. The new orders index declined sharply to 47.8, marking the weakest level since April 2009, and the order backlogs index fell by 2.5 points to 44.5. The production index also slipped, dropping 4.6 points to 51, and the employment index edged down 0.3 points to 56.6. Of the 18 industries surveyed, 7 industries reported growth and 2 reported little change, while the rest contracted.
The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.5 percent increase in June.
Construction spending rose a better than expected 0.9 percent month-over-month in May, while annually, construction spending was up 7 percent. Private construction spending rose 1.6 percent month-over-month compared to a 0.4 percent drop in the spending on public construction. Among private construction, spending on residential construction climbed 3 percent and spending on non-residential construction improved a more modest 0.4 percent.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended July 27th at 10:30 am ET.
Crude oil inventories rose by 2.7 million barrels to 380.1 million barrels in the week ended July 20th. Inventories were above the upper limit of the average range.
Distillate inventories increased by 1.7 million barrels but remained below the lower limit of the average range. Gasoline stockpiles climbed by 4.1 million barrels and were in the lower half of the average range. Refinery capacity utilization averaged 92.4 percent over the four weeks ended July 20th compared to 92.3 percent over the previous four weeks.
The FOMC is scheduled to release its policy statement at 2:15 pm ET.
The FOMC statement released following the conclusion of the 2-day meeting in June showed that the central bank assesses the economy having expanded moderately. The Fed acknowledged the slowing of employment compared to its view in April that labor market conditions have improved. The Fed also said household spending was rising at a somewhat slower pace than earlier this year.
The Committee decided to extend the Operation Twist program till the end of the year in a bid to put downward pressure on longer-term interest rates.
Updating its economic forecasts, the Fed lowered its GDP forecast and increased its unemployment rate forecast while also seeing slower inflation. The central tendency GDP forecast for 2012 was lowered to 1.9-2.4 percent from 2.4-2.9 percent and the unemployment rate forecast was upwardly revised to 8-8.2 percent from 7.8-8 percent. The inflation forecast was lowered to 1.2-1.7 percent. The growth estimates for 2013 and 2014 were also lowered. In the press briefing that followed, Ben Bernanke persisted with his assurance of additional stimulus if conditions warranted.
The Labor Department is due to release its customary jobless claims report for the week ended July 28th at 8:30 am ET. Economists expect claims to increase to 370,000 in the recent reporting week.
U.S. jobless claims fell to 353,000 in the week ended July 21st from an upwardly revised 388,000 in the previous week. The four-week average also slipped to 367,000 from 376,000. Continuing claims fell 30,000 to 3.29 million in the week ended July 7th.
The Commerce Department is due to release its report on factory goods orders for June at 10 am ET. Economists estimate a 0.7 percent increase in orders for factory goods.
Factory goods orders rose 0.7 percent month-over-month in May. Meanwhile, durable goods orders, which make up the bulk of factory goods orders, rose 1.6 percent month-over-month in June, while on a more positive note, the previous month's increase was upwardly revised to 1.6 percent.
However, excluding transportation orders, orders fell 1.1 percent. Non-defense capital goods orders, excluding aircraft orders, considered a proxy for capital spending declined 1.4 percent. Motor vehicle and parts orders declined 0.6 percent, while orders for most categories, including computer products, machinery and electrical equipment, remained weak.
The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 am ET. Economists expect non-farm payrolls for July to increase by 100,000, while the unemployment rate is expected to edge up to 8.3 percent. The private sector is expected to have added 110,000 jobs.
In June, non-farm payroll employment rose by 80,000 jobs following an upwardly revised increase of 77,000 jobs in May. Economists had expected employment to increase by about 100,000 jobs compared to the addition of 69,000 jobs originally reported for the previous month. Despite the continued job growth during the month, the unemployment rate remained unchanged at 8.2 percent, in line with economist estimates
Job growth in the U.S. came in at an anemic rate in May sending the unemployment rate up slightly for the month. The economy added a net of just 69,000 new jobs in May, far lower than the 150,000 expected by most economists. Furthermore, the already week job creation numbers posted for April were revised down sharply to show a gain of just 77,000 positions, 38,000 fewer than the 115,000 initially reported.
The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 am ET. The non-manufacturing index is likely to show a reading of 52 for July.
The service sector index fell to 52.1 in June from 53.7 in May, marking the lowest level since January 2010. The business activity index slipped to 51.7 from 55.6 and the new orders index also declined about 2 points to 53.3. The order backlogs index slipped into recession zone, dropping 5.5 points to 47.5. On the other hand, the employment index rose 1.5 points to 52.3.
by RTT Staff Writer
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