U.S. Second-Quarter GDP Increased 4.1%… Growth missed expectations of 4.4%. The Bureau of Economic Analysis revised first-quarter GDP higher, from 2.0% to 2.2%
What it means – GDP growth might have missed expectations, but the range of estimates was from 3.8% to 5.0%, and it still popped over 4%, which is good news. Now comes the hand-wringing over whether or not this level of growth will last. It’s likely that growth will slow in the second half of the year. A bigger question is what this means for the Fed and how it will affect interest rates. The core personal consumption expenditure, which is the Fed’s preferred inflation measure, came in at 2%, right on the Fed’s target. That number should climb in the months ahead as we work inflationary pressures like higher wages and energy prices through the economy.
If GDP growth slows and inflation ticks higher, it will put the Fed in an awkward position and it won’t be good for the markets.
Existing Home Sales Drop 0.6% in June… Existing home sales fell to an annualized rate of 5.38 million homes, which is 2.2% lower than June of last year.
What it means – Flat, flat, flat. Existing home sales haven’t been able to get off the ground this year, and now the high selling season is coming to an end. This sounds dismal, but the median home sales price increased 4.5% to $276,900, which is 5.2% higher than last year, so it’s still a seller’s market. For buyers, at least inventory is growing a bit, up from 4.1 months’ supply to 4.3.
The question is, why are sales slowing down as prices remain firm? Are rising prices finally crowding out buyers with modestly growing incomes? Are rising mortgage rates taking a toll? It’s hard to see how mortgage rates of 4.6% are holding anyone back. High prices compared with modest income gain are the likely culprit.
In the months ahead, we’ll see if the current labor shortage will drive incomes higher. If that happens, then we should get a bump in homes sales. But it will come with a cost – inflation.
New Home Sales Down 5.3% in June… Even though sales declined last month, they still remain up 2.4% over last year.
What it means – New home sales might still be higher than last year, but the prices paid for those homes are falling. The median price dipped 2.5% last month to $302,100, which is 4.2% lower than last year. Easing sales volume and lower prices aren’t great news for builders, but they should give buyers something to smile about. Another positive for buyers – supply inched higher to 5.7 months.
The story for new homes sales mirrors that of existing home sales. It’s likely that as prices outpaced incomes, fewer buyers can afford the homes.
U.S. Crude Oil Inventory Down 6.1 Million Barrels… The decline more than reversed the gains from last week. The U.S. now has 16.2% less oil in storage than it had last year.
What it means – This is getting repetitive, but we need to pay attention. U.S. oil producers are pumping more of the black gold. We’re on pace to produce 11 million barrels per day this year, which would be a record. But supply constraints elsewhere are making the industry nervous.
High on the list are the sanctions against Iran, which are stronger than before because the Trump administration is putting the screws to countries that want exemptions to buy Iranian oil, and the troubles in Venezuela. The South American country holds the largest proven oil reserves in the world, but production is falling because of mismanagement.
Durable Goods Orders Up 1.0%… Orders increased 0.4% excluding aircraft.
What it means – The headline numbers were lower than expected, held back by lower than forecast aircraft orders and weakness in primary metals and fabrication, which make up 20% of durable goods. But core capital goods orders, a proxy for business spending, beat expectations at 0.6%. While orders were short of the mark in general, they still contributed to GDP growth.
The IMF Expect Venezuelan Inflation to Reach 1,000,000% This Year… The Venezuelan government doesn’t publish economic statistics. It doesn’t have to. The words, “This is a catastrophe” pretty much sum up the situation without getting bogged down in numbers. Some outside analysts had expected inflation to top 20,000% this year, but IMF thinks that number is light. The international bank puts the figure at 1,000,000, which would make the situation worse than what happened in Germany after WWI.
Consumers have all but forsaken paper money. It’s close to impossible to carry enough bank notes to complete a transaction. And vendors don’t want them anyway. It’s much easier to conduct business in eggs, which are scarce, come in discreet units, and hold their value. In that sense, eggs are money, which would make chickens the equivalent of Venezuelan central bankers, since the fowl create the currency.
Data supplied by Dent Research/Delray Beach Publishing
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