- U.S. GDP expected to be revised slightly higher ahead of Q2-Q3 surge
- U.S. weekly unemployment claims expected to show continued improvement
- U.S. pending home sales expected to show a modest increase
- U.S. durable goods orders expected to show 11th consecutive monthly increaseÂ
U.S. GDP expected to be revised slightly higher ahead of Q2-Q3 surge — The consensus is for today’s Q1 GDP report to be revised slightly higher to +6.5% (q/q annualized) from the last estimate of +6.4%. GDP in Q1 was driven higher mainly by the sharp +10.7% increase in Q1 personal consumption that was boosted by two rounds of stimulus checks.
U.S. GDP has risen for the last three consecutive months, from Q3-2020 through Q1-2021, and has now retraced 92% of the -10.1% plunge seen in the first half of 2020 on the pandemic shutdowns. The absolute level of U.S. GDP in the current Q2 will easily exceed the previous record high seen in Q4-2019 and finish overcoming the pandemic recession.
On the GDP front, the markets are mainly looking ahead to the extent of the surge that will occur in the middle of this year. The consensus is that GDP growth will surge by +9.4% in Q2 and +6.8% in Q3. GDP growth is then expected to ease but remain strong at +4.8% in Q4.
The consensus is for GDP growth of +6.5% for calendar 2021, which would easily overcome the -3.5% decline seen in 2020 due to the pandemic. GDP growth is then expected to remain strong at +4.0% in 2022 but ease to the more normal level of +2.4% in 2023.
The GDP growth estimates for this year depend in part on whether President Biden can get the majority of his $4 trillion job and family plan passed by Congress. If so, then the U.S. economy will get another huge dose of stimulus in the latter part of this year and in 2022.
The current surge in the U.S. economy is a welcome relief after last year’s devastation from the pandemic. In addition, the U.S. economy needs to produce another 8 million jobs just to get employment back to where it was before the pandemic.
However, the surge in the U.S. economy is causing problems due to the surge in inflation and a host of supply chain problems. In a normal business cycle, the Fed would already be raising interest rates to cool the boom and prevent a bust down the road. In this case, however, the U.S. economy has more work to do to fill the massive hole in the labor market caused by the pandemic. The Fed has said it will not start raising interest rates until its goals are met for both inflation and the labor market.
U.S. weekly unemployment claims expected to show continued improvement — Today’s unemployment claims report is expected to show a continued improvement in the U.S. labor market. The consensus is for today’s initial unemployment claims report to show a -19,0000 decline to 425,000, adding to last week’s -34,000 decline to a 14-month low of 444,000. Meanwhile, today’s continuing claims report is expected to show a -71,000 decline to 3.680 million, reversing much of last week’s +111,000 increase to 3.751 million.
Unemployment claims have steadily dropped in recent months as the economy recovers, but initial claims are still 228,000 above the pre-pandemic level and continuing claims are 2.043 million above the pre-pandemic level.
U.S. pending home sales expected to show a modest increase — The consensus is for today’s April pending home sales report to show an increase of +1.0% m/m, adding to March’s increase of +1.9%. Pending home sales are currently in tepid shape at 15% below last August’s record high of 130.3 (data since 2001).
The recent home sales data has already shown that U.S. home sales are cooling off due to tight supplies and high prices. U.S. existing home sales fell in the last three reporting months (Feb-April) by a total of -12%. Potential buyers are stepping back from the market somewhat as they wait for more homes to come onto the market. The supply of homes on the market is very tight at 2.3 months, just mildly above the record low of 1.8 months posted in Jan-Feb.
Potential home buyers are also stepping back in response to extremely high home prices. The FHFA home price index has surged during the pandemic and is 15% higher than its pre-pandemic level. The S&P-CoreLogic Composite-20 index is up by +14% from its pre-pandemic level.
U.S. durable goods orders expected to show 11th consecutive monthly increase — The consensus is for today’s April durable goods orders report to show an increase of +0.8% m/m and +0.8% m/m ex-transportation, adding to March’s increases of +0.8% and +1.9%, respectively. Durable goods orders have increased on a month-on-month basis for the last ten consecutive months and were up +35.9% y/y in March due to the low year-earlier base.
7-year T-note auction — The Treasury today will sell $61 billion of 7-year T-notes, wrapping up this week’s $209 billion T-note package. The Treasury market will be on edge today since the 7-year has had a rocky reception in several recent auctions. The benchmark 7-year T-note yield is currently trading near the middle of its 3-month trading range.
The 12-auction averages for the 7-year are as follows: 2.35 bid cover ratio, $12 million in non-competitive bids, 5.6 bp tail to the median yield, 41.7 bp tail to the low yield, and 48% taken at the high yield. The 7-year is of average popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of 60.4% of the last twelve 7-year T-note auctions, which is very close to the median of 60.5% for all recent Treasury coupon auctions