GDP (Q2; 2nd estimate): Significant downward revision

  • Existing home sales (Jul): plunge after expiration of tax incentives

  • Durable goods orders (Jul): rebound due to jump in aircraft and vehicle orders

  • GDP (Q2; 2nd estimate): significant downward revision

Existing home sales fell by more than 7% in the last two months, but that decline was moderate relative to the plunge in forerunning pending home sales, which dived by more than 30% since their April peak. Thus we predict that existing home sales will have decreased sharply from 5.37m to a new low of about 4.25m annualised in July.
After plummeting from 422k to 267k in May, new home sales rebounded by 23.5% mom to 330k in June. Although the free fall was stopped, the level was still almost 17% lower than in the previous year and 75% lower than at the peak in July 2005. Given the ongoing decline in the NAHB index of homebuilders’ confidence, we forecast that new home sales will have fallen again in July, albeit slightly from 330k to 320k.

US Economic Indicators

Durable goods orders went down by almost 2% in the last two months, partly due to declining aircraft orders. But in July, Boeing reported a jump of 165% in orders and the Fed’s industry production report showed a significant rise in car production. Thus durable goods orders could have gone up sharply by 3.2% mom in July. Durable goods orders ex transportation could have evened out their June decline. However, the decelerating ISM manufacturing new orders component indicates a less favourable development of orders ex transportation in the near future, as the graph shows.

US Economic Indicators

Initial jobless claims rose unexpectedly to 500k in the week ending 14 August, which was the highest level since November 2009. Apart from the deceleration in economic growth, the rise could result from having wrongly counted newly prolonged claims as initial. At 480k, we expect jobless claims to have fallen somewhat but to have remained elevated in the week ending 21 August.

The first GDP estimate for Q2 showed a deceleration of the growth rate from 3.7% to 2.4% qoq annualised, although investment demand was stronger than in the first three months and personal consumption slowed only moderately. But the contribution of inventories was much lower than in Q1, and net exports contributed a negative 2.8 percentage points. However, this means that final domestic demand accelerated to 4.1%, which was the highest rate since Q1/2006.
Given that inventories are likely to be revised downwards and that the real trade deficit was even much larger than initially estimated, the GDP growth rate for Q2 could be lowered to a mere 1.5% qoq annualised. The downward revision could support the fear of the US economy experiencing a double dip before long. However, the acceleration in investment demand indicates a continuation of the upswing.

US Economic Indicators

The University of Michigan’s (UMI) preliminary August consumer sentiment improved by 1.8 points to 69.6. Given that the weekly consumer comfort poll improved by 5 points since the beginning of the month, we expect the UMI’s final August consumer sentiment index to have gone up modestly to about 70.0. That is still much lower than this year’s peak level of 74.4 in January, which could be due to the weak labour market prospects and the lingering difficulties on the housing market.

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