Key U.S. Data Releases and Events

Reports on housing will be mixed next week—April OFHEO home prices are expected to see downward pressure, and May new home sales are expected to decline, but existing home sales are projected to see a positive bounce. Real consumer spending likely advanced 0.3% in May—a pickup from a standstill in April, aided by the fiscal-stimulus payments—and first-quarter 2008 real GDP will be revised up by 0.3 percentage point, to 1.2%. But other leading indicators, including May’s durable goods orders and June’s consumer sentiment, will suggest that the economy is struggling to build momentum, despite the massive rebate payments that have been expedited to consumers' bank accounts in the past six weeks.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, June 24 – OFHEO House Price Index (Apr.)

Global Insight: -0.4%
Consensus: -0.5%
Last Actual: -0.4% (Mar.)

What to Look For

• OFHEO home price measure to drop by 0.4%, the same decline as May.

Implications

The OFHEO tracks the prices of homes purchased with mortgages that have Freddie Mac's or Fannie Mae's seal of approval. These conventionally financed homes have not been dropping in value as steeply as houses financed through subprime, jumbo, or Alt-A loans. We expect the OFHEO index to keep posting modest monthly declines. For April, we see another 0.4% drop, the same as in March.

Wednesday, June 25 – Durable Goods Orders (May)

Global Insight: -1.2%
Consensus: 0.0%
Last Actual: -0.5% (Apr.)

What to Look For

• Orders are expected to slide by 1.2%.

Implications

A downdraft in aircraft orders and some cooling in a number of machinery and equipment categories will be a damper on orders. Indeed, May was not a great month for Boeing, with 67 aircraft ordered, and the vast majority of those 737s, the least-expensive aircraft family; after seasonal adjustment, that should trim orders by $2 billion from April. A number of machinery categories like electrical, HVAC, and oilfield equipment had unusually strong results in April, which should be hard to repeat. The plus is that motor vehicle orders have been beaten down for five consecutive months and are overdue for a bounce-back now that the American Axle strike is over. The expected pullback in orders is not a good harbinger for growth during the second half of 2008.

Wednesday, June 25 – New Home Sales (May)

Global Insight: 0.510 Mil.
Consensus: 0.512 Mil.
Last Actual: 0.526 Mil. (Apr.)

\What to Look For

• New home sales to decline by 3% in May.

Implications

New home sales have been trending down, and this should continue, since credit conditions remain tight and mortgage rates have backed up to some extent. The key numbers in the report, though, will be the inventory of unsold homes, which has dropped 12 straight months in absolute terms (although not relative to the monthly selling rate), and the inventory of completed homes, which hit a record high in December, but has now fallen three straight months.

Wednesday, June 25 – FOMC Rate Decision

Global Insight: 2.00%
Consensus: 2.00%
Last Actual: 2.00%

What to Look For

• The FOMC to vote to keep rates unchanged, at 2.00%.

Implications

The Federal Reserve's Federal Open Market Committee is expected to keep interest rates unchanged on June 25. While downside risks to growth undoubtedly remain, upside risks to inflation have intensified—mainly as a result of further upward pressure on crude oil, grains, and other commodity prices. In addition, inflation expectations have crept up a little. The balance of risks has shifted towards inflation since the previous meeting, and the Fed's press release will highlight these points.

Thursday, June 26 – Real Gross Domestic Product (Final Q1)

Global Insight: +1.2%
Consensus: +1.0%
Last Actual: +0.9% (Preliminary Q1)

What to Look For

• Upward revision in real GDP growth, from 0.9% to 1.2%.

Implications

Real GDP growth in the first quarter is likely to be revised up again, to 1.2%, from the preliminary 0.9% reading, which itself was revised up from the original 0.6% reading. The second revision should reflect higher estimates of construction and consumer spending. So, growth should move more comfortably away from the zero mark.

Thursday, June 26 – Existing Home Sales (May)

Global Insight: 4.99 Mil.
Consensus: 4.95 Mil.
Last Actual: 4.89 Mil. (Apr.)

What to Look For

• Sales to bounce up by 2%.

Implications

The Pending Home Sales Index jumped 6.3% in April, to 88.8, pointing to stronger existing home sales during May-June. For May, we are projecting a 2% rise in sales, to a 4.99-million-unit annual rate. Keep an eye on sales in the West, where they appear to have turned around. Keep an eye on inventories, as well. The months' supply of existing single-family homes rose to 10.7 months In May (the highest reading since June 1985). Housing will not hit bottom until this number starts coming down.

Friday, June 27– Personal Income, Consumption and Prices (May)

Personal Consumption, Nominal
Global Insight: +0.8%
Consensus: +0.6%
Last Actual: +0.2% (Apr.)

Personal Consumption, Real
Global Insight: +0.3%
Last Actual: 0.0% (Apr.)

Core PCE Price Index
Global Insight: +0.2%
Consensus: +0.2%
Last Actual: +0.1% (Apr.)

Personal Income
Global Insight: +1.7%
Consensus: +0.4%
Last Actual: +0.2% (Apr.)

What to Look For

• We expect a 1.7% increase in personal income for May—but that reflects the impact of economic-stimulus payments, rather than underlying strength.
• Real consumer spending to rise 0.3%.
• Core PCE deflator expected to rise 0.2% (or 2.2% year-over-year).

Implications

While personal income will jump, we should see only a small increase in wage and salary disbursements, because while hourly earnings increased 0.3%, hours worked dropped 0.2%. We expect a big jump in transfer payments, though, because stimulus rebates in excess of an individual's tax liability count as transfer payments, rather than as a tax cut. Personal disposable income, which includes the rest of the rebates as tax cuts, should leap around 5.3%.

Core retail sales increased a solid 1.1% in May, helped by stimulus payments, but also inflated by surging gasoline prices. However, auto sales were down again (to their lowest level in 10 years). Assuming a 0.6% gain in spending on services (itself inflated by rising prices for natural gas and electricity), consumer spending should increase about 0.8%. But the rise in energy prices will erode most of these gains in real terms, and adjusted for inflation, spending should increase 0.3%. Overall, we are seeing a fairly muted response on the part of consumers to the fiscal-stimulus payments.

The core PCE deflator should accelerate in May and rise 0.2%, after edging 0.1% higher in the previous month. We also look for an upward tick in the year-on-year rate to 2.2%, from the 2.1% pace recorded in each of the two preceding months. Despite a weak economy, we expect higher energy and other input costs to seep into consumer prices over the coming months, causing core PCE inflation to creep higher and reach 2.5% by the mid-2009.

Friday, June 27 – Michigan Consumer Sentiment Index (Final Jun.)

Global Insight: 56.7
Consensus: 56.8
Last Actual: 56.7 (Preliminary Jun.)

What to Look For

• Overall confidence to be unchanged from a low mid-June reading.

Implications

Rising unemployment and rising inflation will push consumer confidence lower in June compared with May. The Reuters/University of Michigan consumer sentiment index is expected to average 56.7 in June, unchanged from the preliminary reading, but down 2.1 points from May. Extremely weak levels for consumer sentiment continue to act as a major offset to the potential positive impulses of the fiscal-stimulus program on consumer spending.