Stock markets rose yesterday in the United States as optimism dominated financial markets as the ISM manufacturing signaled the recession is indeed easing, while activity in the construction sector seems to be picking up as well, meanwhile investors will be waiting anxiously today for the Income report which should provide further hints over the current outlook for the world’s largest economy.

 

Personal income is expected to have dropped in June by 1.0% following the prior reported rise of 1.4% as job losses continued to mount driving the unemployment rate to a 26-year high at 9.5%, while personal consumption is expected to have risen by 0.3% in June inline with the prior reported rise back in May.

 

Moreover, PCE deflator is expected to have risen by 0.2% in June following the prior reported rise of 0.1%, while the Federal Reserve Bank’s favorite gauge for inflation core personal consumption expenditures is expected to have risen by 0.2% in June following the prior reported rise of 0.1%, and core PCE is expected to have risen by 1.7% following the prior reported rise of 1.8%.

 

The Feds expect inflation to remain subdued over the course of this year, as the downside pressures from the recession should continue to weigh down on prices and accordingly inflation should remain under control despite the recent rise in energy prices, which could increase upside risks to inflation over the long term.

 

Yet given the huge increase in spare capacity in addition to the ongoing weakness in consumer spending; inflation should remain rather controlled, as producers won’t raise their prices dramatically, since they still want to lure consumers into spending their money, especially amid rising unemployment rates which should restrict consumer spending and keep demand levels subdued.

 

Meanwhile, the U.S. will also release the pending home sales for the month of June, pending home sales are expected to rise by 0.7% following the prior reported rise of 0.1%; while compared with a year earlier pending home sales were reported to have risen by 4.6% back in May.

 

The housing sector has been showing further signs of stability over the last few months, as seemingly the worst slump for the housing sector in more than seven decades has finally come to an end, and accordingly activity in the housing market started to rise amid cheap home prices which lured bargain seeking buyers.

 

However, the housing market is still facing some challenges ahead, as rising foreclosures, tightened credit conditions, rising unemployment, and diminishing wealth should continue to weigh down on activity in the housing market, and are indeed threatening to lead the sector back to misery, though unlikely now as we expect stabilization to prevail over the housing sector.

 

Yesterday, data from the construction and manufacturing sectors suggested that activity is improving in both sectors, and that provided hopes among investors that the worst of this recession is indeed over and there’s only room for improvement from now on, as after almost two years of misery, the economy is finally back on the right track to recovery.

 

The U.S. economy is expected to return back to growth over the course of the second half of this year, especially after the GDP reported released last week signaled the economy contracted by 1.0% in the second quarter, and apparently conditions continue to improve, which means the economy might indeed start to grow during the third quarter of this year…