Some positive data on housing; little elsewhere. This past week (June 25-29) brought data on the housing market, durable goods, and consumers. New home sales rose in May, while home prices showed signs of stabilizing in April; but there are no indications that a full-fledged rebound is imminent.
Durable goods orders rose in May thanks to aircraft and turbines, but core capital goods demand was less robust. With the exception of falling gasoline and food prices, most of the recent news on the consumer front has been lackluster or dismal. Consumer sentiment readings this past week were troubling, with the Conference Board index falling for the fourth straight month and the Reuters/University of Michigan index dropping by more than six points in June. Finally, personal income held pace in May, at 0.2%, while real consumer spending ticked up 0.1%.
Jobs stuck in first gear. This coming week (July 2-6) brings the always critical Employment Report for June. After two disappointing months, markets are wondering how much of the recent weakness was payback for the weather-induced growth earlier in the year, and how much was a genuine loss of momentum.
A rebound in payroll growth back above 100,000 would suggest that the labor-market recovery, while sluggish, was still on track. Unfortunately, markets will likely be disappointed. We project that the economy added just 75,000 jobs this month, no better than April/May. The unemployment rate won?t budge from its 8.2% perch and wage growth will be anemic. Will this convince the Fed to pull the trigger on QE3 at the late-July meeting? Probably not.
The committee will want to see what Operation Twist II accomplishes. Additionally, a disinflation trend will be a key ingredient in any Fed decision. It?s simply too early for the Fed to take another and more drastic step, but it will reinforce the narrative of Fed Doves that the economy is going nowhere fast and will ultimately need extra support.
Tuesday, July 3 ? Motor Vehicle Sales (Jun.)
Light vehicle sales levels are expected to improve from May but remain below the pace set during the first four months of 2012. Year-over-year comparisons will continue to look robust thanks in part to inventory-constrained sales in 2011.
Thursday, July 5 ? ISM Non-Manufacturing Index (Jun.)
A weaker jobs profile and headwinds from Europe suggest a slower pace of expansion in the non-manufacturing sectors in June. Growth in the manufacturing sector has cooled, and non-manufacturing industries are likely to follow suit, particularly as lower oil prices filter through the energy sector.
Friday, July 6 ? Employment Report (Jun.)
The incoming evidence on the labor market, including a continuing gradual uptrend in initial unemployment insurance claims, suggests another soft employment report in June. We expect payroll employment to rise 75,000, little different from the previous two months. We expect the unemployment rate to hold steady at 8.2%.
