Consensus Prior
Monday, 6/18
June NAHB Housing Market Index 30 30
May’s level fell back to September’s cycle low of 30
Rising mortgage rates reduce affordability, as do subprime woes
Range is zero to 100, with zero indicating all builders view conditions as poor, and 100 indicating all builders see potential as good
Tuesday, 6/19
May Housing Starts 1480k 1528k
3.3% drop anticipated following declines in building permits Large supply of new homes for sale precludes fast recovery
Vacancy rates at record levels
May Building Permits 1480k 1457k
1.6% increase expected
Building permits fell a revised 7% in April to a decade low
Cancellation rates remain high
Boston Fed President Minehan speaks on “Labor Supply in the New Century”
Greenspan speaks on “Corruption in the Financial World”
Wednesday, 6/20
Mortgage Applications +6.6%
Seeing a last surge as interest rates move rapidly higher
Treasury Secretary Paulson testifies to House Financial Services Committee on the International Financial System
San Francisco Fed President Yellen and NY Fed President Geithner at SF Fed Conference on “Trends in the Asian Financial Sector”
Dallas Fed President Fisher speaks on the Regional Economy and the Fed
Thursday, 6/21
Initial Jobless Claims 310k 311k
Expected to hold steady at 4-week average of 311k
May Leading Indicators +.2% -.5%
Improvement expected from lower jobless claims and rising equity prices
Weakness expected from lower manufacturing hours
Likelihood of a recession is below 20%
June Philadelphia Fed 6.5 4.2
Pennsylvania, Delaware, and NJ are expected to rebound more slowly than the nation as a whole, with modest growth in June
Federal Reserve Advisory Council holds meetings on the Truth in Lending Act and the Home Ownership Equity Protection Act
Friday, 6/22
No Data
Cleveland Fed President Pianalto speaks at Fed’s 2007 Community Development Summit on “Partnering for Success”
Friday, June 15, 2007
Consumer Confidence Slumps in June
The University of Michigan consumer confidence survey unexpectedly tumbled to a ten month low in June of 83.7 (consensus 87.8) from 88.3 in May. Current conditions fell a little harder than future expectations, with a decline of 4.9 versus 4.6.
Inflation expectations rose , with one year expectations rising to 3.5% from 3.3% last month, representing the highest 1-yr inflation expectation level since last August. Expectations for inflation over the next five years fell to 3% from 3.1% in May.
The gloomier outlook is probably representing concerns about rising fuel prices and falling house prices, combined with recent reports of anemic GDP growth in the first quarter.
Inflation expectations rose , with one year expectations rising to 3.5% from 3.3% last month, representing the highest 1-yr inflation expectation level since last August. Expectations for inflation over the next five years fell to 3% from 3.1% in May.
The gloomier outlook is probably representing concerns about rising fuel prices and falling house prices, combined with recent reports of anemic GDP growth in the first quarter.
Foreign Demand for Equities and Short-Term Assets More than Offsets Selling of U.S. Treasuries in April
Net total foreign purchases of U.S. securities were much stronger than anticipated in April, increasing by $111.8B, twice as much as the $55B consensus, and almost four times the net $30.1B pace of acquisitions during March. Long-term TIC flows also improved, but at a slower pace. April long-term demand was $84.1 billion versus $51.2B in in March. Both of the Mach net and long-term TIC flows were revised down by around $15B from the originally reported figure.
Private demand for U.S. securities (+$93.6B) swamped official/central bank (+$18.2B) flows in April. The 5-to-1 ratio was much higher than the 3-to-1 average ratio for the past year. Most of this increase was in short-term securities, as net long-term private demand fell $5B from March to April. Within the private sector demand for long-term securities, equities and agencies saw the largest increase from the prior month. Corporate bonds experienced slower demand, and there was outright selling of Treasuries. The approximately $20B increase in equity purchases coincides with a gain of +5.7% in the DOW during April.
Holdings of agency debt continue to expand, increasing by $36B in April and $15B in March. On the other hand, demand for U.S. Treasuries fell to the lowest level in almost four years during April as purchases fell barely into positive territory for the month. Japan increased its purchases of Treasuries, but China was a net seller of $6B. It is likely that the Middle East was also a seller of over $10B, as were the hedge funds.
U.S. investor demand for foreign securities declined in April to $13.3 billion from $47.4B during March.
Private demand for U.S. securities (+$93.6B) swamped official/central bank (+$18.2B) flows in April. The 5-to-1 ratio was much higher than the 3-to-1 average ratio for the past year. Most of this increase was in short-term securities, as net long-term private demand fell $5B from March to April. Within the private sector demand for long-term securities, equities and agencies saw the largest increase from the prior month. Corporate bonds experienced slower demand, and there was outright selling of Treasuries. The approximately $20B increase in equity purchases coincides with a gain of +5.7% in the DOW during April.
Holdings of agency debt continue to expand, increasing by $36B in April and $15B in March. On the other hand, demand for U.S. Treasuries fell to the lowest level in almost four years during April as purchases fell barely into positive territory for the month. Japan increased its purchases of Treasuries, but China was a net seller of $6B. It is likely that the Middle East was also a seller of over $10B, as were the hedge funds.
U.S. investor demand for foreign securities declined in April to $13.3 billion from $47.4B during March.
Industrial Production Didn't Expand In May/ Capacity Utilization Falls
Industrial production unexpectedly remained unchanged in May versus expectations for growth of +.2% MoM. In addition, capacity utilization fell to 81.3% from 81.5% in April, which was also revised lower from an 81.6% original estimate. In addition, the growth rate for April industrial production was scaled back to +.4% MoM, instead of +.7% MoM. Industrial production has risen 1.6% versus a year earlier.
It appears that manufacturers of autos (-.5% MoM) and other machinery scaled back production, and mild weather reduced utility demand (-1.3% MoM). Mining production did rebound though to rise +.5% MoM, on gains in coal and natural gas. Consumer goods production fell -.2%, mainly in durable goods, most likely in reaction to the slow down in retail spending.
Factory output accounts for about 80% of industrial production, and rose +.1% MoM. Manufacturing capacity utilization slipped to 79.9% in May, as capacity grew faster than output.
Today's data will put into doubt the rebound seen in other manufacturing measures, and may indicate a hesitancy to raise production when interest rates and fuel prices are rising.
It appears that manufacturers of autos (-.5% MoM) and other machinery scaled back production, and mild weather reduced utility demand (-1.3% MoM). Mining production did rebound though to rise +.5% MoM, on gains in coal and natural gas. Consumer goods production fell -.2%, mainly in durable goods, most likely in reaction to the slow down in retail spending.
Factory output accounts for about 80% of industrial production, and rose +.1% MoM. Manufacturing capacity utilization slipped to 79.9% in May, as capacity grew faster than output.
Today's data will put into doubt the rebound seen in other manufacturing measures, and may indicate a hesitancy to raise production when interest rates and fuel prices are rising.
Current Account Deficit Continues to Grow, Now 5.7% of GDP
The current account balance continues to move further into deficit, but at a slower pace than anticipated. The first quarter deficit expanded by $192.6 billion which was lower than the consensus expectation of -$201B. The fourth quarter deficit was also revised lower to -$187.9B versus a prior estimate of -$195.8B. At this pace, the U.S. needs to attract over $2.1B per day in investments to fund the deficit. As a percentage of GDP, the deficit has grown to 5.7%, from 5.6% in the fourth quarter. For all of last year, the current account deficit was $811.5 billion, the largest on record. Just this month Fed Chairman Bernanke mentioned that the current account deficits and global imbalances remain "worrisome". The current account measure is the broadest indication of trade as it includes transfer payments and investment income.
An increase in investment income, of $4.5 billion, to the U.S. from overseas, helped reduce the size of the deficit as the actual trade deficit held steady between the 4Q06 and 1Q07. U.S. government payments abroad rose by $6B during the quarter.
An increase in investment income, of $4.5 billion, to the U.S. from overseas, helped reduce the size of the deficit as the actual trade deficit held steady between the 4Q06 and 1Q07. U.S. government payments abroad rose by $6B during the quarter.
Empire Manufacturing Rebounds
New York factories picked up the production pace in June, to raise the NY Fed's general economic index to 25.8 (consensus 11.3), versus 8 in May, as new orders and shipments rose. Any reading above zero indicates expansion. The index had slowed down considerably this year to an average reading of 9.4 in the first five months of 2007 versus and average of over 20 during 2006.
Inventory rebuilding helped both new orders and shipments to more than double in June versus May. New orders were 17.2, while shipments rose to 29.8. Inventories moved into positive territory at 3.2. Prices paid rose to 42.6 while prices received fell to 9.6.
The New York Fed is the earliest of the regional surveys, and is considered to be a better predictor for high-tech and apparel than some of the other regional surveys.
Inventory rebuilding helped both new orders and shipments to more than double in June versus May. New orders were 17.2, while shipments rose to 29.8. Inventories moved into positive territory at 3.2. Prices paid rose to 42.6 while prices received fell to 9.6.
The New York Fed is the earliest of the regional surveys, and is considered to be a better predictor for high-tech and apparel than some of the other regional surveys.
Headline CPI Inflation Higher Than Expected, Core Lower
Headline CPI inflation in May was slightly greater than expected rising +.7% MoM (consensus +.6%) and +2.7% YoY (consensus unchanged at +2.6%). This was the largest increase in the headline figure on a monthly basis since September 2005. Core CPI, which excludes food and energy, rose +.1% MoM (consensus +.2%) and +2.2% YoY (consensus unchanged at +2.3%). There were no revisions to the April data. The CPI figure is considered to be the broadest inflation figure because it includes goods and services.
As anticipated, energy prices rose a strong +5.4% MoM, with gasoline gaining +10.5% MoM to a record high. Owners equivalent rent continues to decelerate to +.1% MoM in May, down from +.3% MoM in March. Food and beverage prices rose +.3% MoM, as did medical care. Rising transportation costs (+2.8% MoM) had the strongest impact on the rising CPI headline figure, after energy, in May, while auto costs fell -.2%..
The market liked the decline in core CPI inflation to the lowest level since the first quarter of 2006. Ten year Treasury yields fell around 3bp to 5.19% after the number.
As anticipated, energy prices rose a strong +5.4% MoM, with gasoline gaining +10.5% MoM to a record high. Owners equivalent rent continues to decelerate to +.1% MoM in May, down from +.3% MoM in March. Food and beverage prices rose +.3% MoM, as did medical care. Rising transportation costs (+2.8% MoM) had the strongest impact on the rising CPI headline figure, after energy, in May, while auto costs fell -.2%..
The market liked the decline in core CPI inflation to the lowest level since the first quarter of 2006. Ten year Treasury yields fell around 3bp to 5.19% after the number.
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