Housing data this week were generally supportive of this view. Housing starts jumped 6.9% in June and are now 24% higher than a year ago. Single-family units were up 4.7%. Permits fell, but this was likely payback for strong permitting in May. Meanwhile, existing home sales unexpectedly fell, but not for lack of buyer interest.
According to the National Association of Realtors, buyer interest was solid last month and traffic has doubled from last fall. Instead, "tight supplies of affordable homes [limited] first time buyers." Indeed, inventories of single-family homes fell 3.6%. A shortage of affordable homes for sale helped push up prices and kept first-time buyers at just 32% of total sales, down from 34% in May. We are starting to see the green shoots of a housing recovery.
But don´t expect a surge in buying and construction any time soon. The housing recovery will ultimately be limited by tight mortgage credit and slow progress within the rest of the economy.
Wednesday, July 25 New Home Sales (Jun.)
Housing permits are up 19% from a year ago, suggesting that home builders are seeing stronger buyer interest. As a result, we expect new home sales to have advanced 1.6% in June, to a 375,000 annual rate.
Thursday, July 26 Durable Goods Orders (Jun.)
Durable goods orders should firm with help from commercial aircraft and turbine machinery. Boeing garnered more orders for new planes in June than in May, and turbines will enter a second month of gains before the expected July crash. Elsewhere, however, there will be little strength. June durable shipments, meanwhile, will be the last piece of news used in constructing second quarter GDP estimates.
Friday, July 27 Gross Domestic Product (First Estimate, Q2)
We expect GDP growth to slow to just 1.2% in the second quarter from 1.9% in the first. The main problem area is consumer spending, which we expect to grow just 1.0% in the second quarter, down from 2.5% in the first. Inventories should add to growth in the second quarter (probably contributing 0.3 percentage point), largely due to the re-building of motor vehicle inventories, but they are likely to become a drag on growth in the second half of the year.
One piece of good news in a weak overall report should be an improvement in business fixed investment growth, thanks to faster growth in business equipment spending. This GDP report will contain annual revisions which have the potential to change the perceived trajectory of the recovery ? as they did, substantially for the worse, a year ago.
Friday, July 27 Reuters/University of Michigan Consumer Sentiment Index (July, final)
Consumer sentiment will end the month slightly higher than the early-month reading, and just a hair under the June reading. Poor job prospects, stock market volatility, and renewed pessimism are keeping sentiment low.