The durables goods report showed a 0.7% jump in orders in June

Week in review

Canada – Retail sales rose a consensus-topping 0.7% in May, after an upwardly revised increase of +1.3% in the prior month. In May, sales rose in 7 of the 11 subsectors. Auto sales were up a sharp 2.5%, after similarly large gains in the prior month. Excluding autos, however, sales rose just 0.1%, a bit softer than expected. Gains by retailers selling gasoline (+2%), furniture/home furnishings (+3.7%), building materials (+3.5%), sporting goods (+2.1%), and miscellaneous items (+1.5%) more than offset declines in sales of health/personal care products (-1.2%), electronics (-1.7%), food/beverage (-1.6%) and general merchandise (-0.5%). Sales of clothing/accessories were roughly flat. British Columbia was the only province seeing lower sales in May. As a result, it slipped to second place, on a year-on-year basis, with nominal sales up 6.4%, just behind Alberta (+6.5%). In real terms, overall retail sales rose 0.4% in May after a solid 1% advance in the prior month. So much so, that retail volumes are now tracking growth of 5.3% annualized in Q2, after the first quarter’s weak +0.3% print. That’s much in line with our view that the Canadian economy accelerated in Q2 after a soft first quarter of 2014.

United States – The consumer price index (CPI) rose 0.3% in June, allowing the annual inflation rate to remain unchanged at a consensus-matching 2.1%. There was a 1.6% jump in energy prices and a 0.1% increase in food prices. Excluding food and energy, prices rose just 0.1%, which allowed the year-on-year core inflation rate to fall one tick to 1.9%. The deceleration of the core CPI was due to smaller price increases in services, namely in medical care. The inflation data was a touch softer than expected on the core. That being said, one month doesn’t make a trend. In fact the recent trend, as evidenced by the 3-month annualized rate of growth, is showing the headline at a hot 3.5% and the core at 2.5%.

Existing home sales rose a consensus-topping 2.6% to 5.04 million units in June, the highest since October last year. Consensus was looking for a print of just 4.99 million units. June sales were driven by both multis (+3.4%) and single family units (+2.5%). The months supply of homes at current sales rate was unchanged at 5.5. The median resale price rose to $223,300 and is now 4.3% higher than year-ago levels. About 32% of June sales were made to cash buyers (similar to the prior month), while the share of distressed sales in total sales was stable at 11%.

New home sales sank 8.1% to just 406K in June from a downwardly revised 442K print in the prior month (May was initially reported at 504K). June’s sales were the lowest since March and disappointed consensus which was expecting a reading of 475K. The months supply of homes at current sales rate jumped to 5.8, the highest since October 2011. Overall, new home sales contracted in Q2 for the second consecutive quarter. But that has to be looked at in context because the contraction in the first two quarters this year (-12.8% and - 10.7% annualized respectively) came after an unsustainable 86% jump in Q4 last year. Odds are that new home sales will bounce back in the second half of 2014, at least based on the NAHB builder confidence index which jumped to a 6-month high in July. Builders wouldn’t be upbeat if the sales outlook is bad.

The durables goods report showed a 0.7% jump in orders in June. There was a 0.6% increase in new orders of transportation equipment driven by aircrafts which more than offset decreases in orders of autos/parts. Ex-transportation, orders rose 0.8%. Total shipments of durable goods rose 0.1%. Shipments of non-defense capital goods ex-aircraft, a proxy for business investment spending, were down 1% in June, but still managed to grow 4.1% annualized in Q2, i.e. roughly double the pace of the prior quarter.

The manufacturing purchasing managers index fell one full point to 56.3 in July (from 57.3 in the prior month) according to Markit’s flash/preliminary estimate. That was a bit softer than the 57.5 print expected by consensus. Still, a reading above 50 implies expansion in manufacturing activity. In July, both the output and new orders sub-indices fell a bit, but remained well in expansion territory. The employment sub-index also fell but remained above the 50 mark for a 13th consecutive month.

Weekly jobless claims data for the week of July 19th showed initial claims falling to just 284K (from 303K in the prior week), the lowest since 2006. The more reliable 4-week moving average fell to 302K, the lowest since 2007. Continuing claims for the prior week dropped 8K to 2.5 million.

World – Flash manufacturing purchasing managers indices for the month of July were released by Markit for a range of countries. In China, the PMI climbed to an 18-month high of 52 (from 50.7 in the prior month), buoyed by production whose sub-index reached a 16-month high, and by new orders which were helped in part by exports. Japan’s PMI fell slightly to 50.8 (from 51.5 in the prior month) as the output sub-index fell to 50. The eurozone PMI rose to 51.9 (from 51.8 in the prior month) as the output sub-index increased slightly. The increase was driven by Germany whose PMI edged up to a 3- month high of 52.9. That helped offset the decline in France to a PMI of just 47.6, a 7-month low.

The eurozone’s services PMI rose to a 38-month high of 54.4 in July as Germany’s reading jumped to 56.6, and France’s returned to expansion with a print of 50.4. In the U.K., GDP grew 0.8% unannualized in Q2, with the services sector accounting for the bulk of the growth.

In Japan, the annual inflation rate was 3.6% in June, with last April’s sales tax increase amplifying year-on-year comparisons.