- U.S. Q1 GDP expected to be revised slightly higher
- U.S. metropolitan home prices expected to show a strong increase
- U.S. consumer confidence expected to recover a bit in June
- Richmond Fed index is expected to show a small increase
U.S. Q1 GDP expected to be revised slightly higher — The market is expecting today’s U.S. Q1 GDP to be revised slightly higher to +1.0% from the last estimate of +0.8% (q/q annualized). The upward revision in GDP is expected to stem in part from an expected upward revision in Q1 personal consumption to +2.0% from +1.9%.
As in Q4, personal consumption in Q1 was the only sector holding up GDP, contributing +1.29 points to GDP. By contrast, government spending in Q1 contributed +0.20 points to GDP in Q1, while there were subtractions of -0.25 points from business investment, -0.21 points from net exports, and -0.20 points from inventories.
Looking ahead, GDP in Q2 is likely to show an upward rebound to at least +2.5% after the weak Q1 pace of +0.8%. The latest Atlanta Fed GDPNow forecast for Q2 GDP as of last Friday was +2.6%, down slightly from their previous estimate of +2.8% on June 17. GDPNow is forecasting a fairly big -0.53 point subtraction from GDP from inventories as the inventory correction continues to hurt GDP. By contrast, GDPNow is forecasting a solid +2.77 point contribution to GDP growth from personal consumption, which would be a good sign that consumers are still able to hold up the economy, while business investment, net exports, and government spending remain weak.
After the expected rebound in Q2 GDP to around +2.5%, the market consensus is for U.S. GDP to return to weak levels of +1.7% in Q3 and +2.0% in Q4. GDP could easily turn out to be weaker than the currently-stated consensus estimates, which were formulated before the UK Brexit vote caused a sharp sell-off in the U.S. stock market and caused some damage to U.S. business and consumer confidence. For this year, the market consensus is for GDP growth of only +1.9%, a 3-year low, with a modest improvement to +2.3% in 2017 and then +2.1% in 2018.
U.S. metropolitan home prices expected to show a strong increase — The market is expecting today’s April S&P/CaseShiller composite-20 home price index to show another solid increase of +0.60% m/m, adding to March’s +0.85% m/m increase. On a year-on-year basis, the market is expecting the series to edge higher to +5.5% y/y from +5.43% in March. The FHFA U.S. house price index for April, which has already been released, showed a modest increase of +0.2% m/m following March’s +0.8% surge.
The CaseShiller index stalled a year ago in spring and summer 2015 but has since shown strong increases. Since last August, the index has shown a sharp increase of +5.3%. The index has now risen by a total of +37% from the housing bust low posted in Jan 2012. The index needs to rise by another +9.8% to reach the record high for the series that was posted in April 2006 before the housing bust emerged.
U.S. home prices continue to see strength due to strong home sales and moderately tight supplies. U.S. existing home sales in May rose by +1.8% to post a new 9-1/3 year high of 5.53 million units. Meanwhile, there were 4.7 months worth of existing homes on the market in May, which was well below the long-term average of 7.0 months and the 7-8 month level that the National Association of Realtors says is consistent with stable home prices. Home sales have remained strong despite the deterrent caused by rising home prices. The median price of an existing home sales in May rose to a record high of $239,700.
U.S. consumer confidence expected to recover a bit in June — The market is expecting today’s Conference Board June U.S. consumer confidence index to show a +0.7 point increase to 93.3, reversing one-third of May’s -2.1 point decline to 92.6. The already-released University of Michigan U.S. consumer sentiment index for early June fell by -1.2 points to 93.5, which did not bode well for today’s Conference Board report. The Conference Board’s index fell by a total of -3.5 points in April-May to match the 10-month low of 92.6 first posted in Nov 2015.
U.S. consumer sentiment remains generally strong so far but there are threats including (1) the UK Brexit vote that pushed the U.S. stock market lower and has added to the uncertainty for the U.S. economy, (2) the recent downtrend in hiring, (3) the slow rise in gasoline prices, and (4) the toxic presidential campaign.
Richmond Fed index is expected to show a small increase — The market is expecting today’s June Richmond Fed manufacturing index to show a +3 point increase to 2, stabilizing after May’s -15 point plunge to -1. The business sentiment data so far for June has been modestly positive. In June, the Empire manufacturing index rose by +15.03 points to 6.01, the Philadelphia Fed’s business index rose by +6.5 points to 4.7, and the Kansas City Fed’s index rose by +7 points to 2. On the national business confidence front, the market is expecting this Friday’s June ISM manufacturing index to show a small +0.2 point increase to 51.5, adding to May’s +0.5 point increase to 51.3.
