Making Sense of the Economy This Week

It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines…

Second-Quarter Gross Domestic Product

The Commerce Department announced that its preliminary estimate for second-quarter GDP growth was an annual pace of 2.6%. This was slightly below economists’ consensus estimate of 2.7%. Interestingly, the International Monetary Fund (IMF) cut its U.S. GDP forecast for both 2017 and 2018 to only 2.1%. This is down from its prior forecasts of 2.3% for 2017 and 2.5% for 2018. The IMF cited “the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of U.S. fiscal policy changes.” In other words, the IMF pays more attention to politics than actual economic data. You can ignore the IMF GDP forecasts, since based on economic data, the U.S. is on track for at least 2.5% annual GDP growth for the foreseeable future, especially in light of a weaker U.S. dollar that is boosting exports.

Consumer Confidence

On Tuesday, the Conference Board announced that consumer confidence rose to 121.1 in July, up from a revised 117.3 in June. This is the second highest reading for consumer confidence since 2000. The Conference Board’s current conditions sub-index is now at a 16-year high due to a strong stock market, falling gasoline prices and strength in the job market. Lynn Franco, the Conference Board’s director of economic indicators, said “overall, consumers foresee the current economic expansion continuing well into the second half of this year.”

Existing Home Sales

On Monday, the National Association of Realtors announced that existing home sales declined 1.8% in June to an annual pace of 5.52 million. Economists were expecting an annual pace of 5.58 million, so the dip in existing home sales was a surprise. Higher prices, a tight inventory of only a 4.3-month supply, and higher mortgage rates were all likely reasons for the sales slowdown. Three of the four major regions reported declining sales, with the Midwest the only region where exiting home sales rose in June. Compared to 12 months ago, existing home sales have risen 0.7%. In the past 12 months, median sale prices have increased 6.5%.

New Home Sales

On Wednesday, the Commerce Department reported that new home sales improved 0.8% to an annual rate of 610,000 in June. This was up from an annual rate of 605,000 in May. This was slightly below economists’ consensus estimate of an annual pace 615,000. In the past 12 months, new home sales have risen 9.1%, which is very encouraging. Interestingly, median new home prices declined 3.3% to $310,800. The inventory of new homes for sale rose to a 5-month supply in June, up from a 4.6-month supply in May. Overall, despite higher lumber prices and an acute shortage of construction workers, homebuilder sentiment remains positive.

Durable Goods Orders

On Thursday, the Commerce Department announced that durable goods orders soared 6.5% in June, due largely to a 19% surge in transportation orders. Excluding transportation orders, durable good orders rose 0.2% in June. Interestingly, business investment declined in June for the first time this year, so hopefully this is just a temporary aberration. Excluding defense orders, new orders surged 6.7% in June; this is especially promising. Overall, it appears that a weaker U.S. dollar may now be helping to boost exports, which is great news for second-quarter GDP growth.

That’s all I have for you this week; I’ll be in touch again next week with the latest ratings updates out of Portfolio Grader.

Have a great weekend,

Louis Navellier

Louis Navellier

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