Mixed Results in Week's Economic Data

Bob Johnson: This week we received a lot of economic data. Some of it positive, and some of it negative. Let's first start with some of the negative data we've received this week.

It started out badly when durable goods orders looked down sharply, both the year over year and month to month. However, when you adjust for the fact of aircraft orders it didn't look quite so bad, but nevertheless manufacturing orders for new durable goods were mediocre at best.

Then as we move later in the week, we got a look a look at the housing sector with pending home sales, which is an indicator of existing home sales in the following month. Again, housing has been a key part of this recovery, and so it's a very important data point. There we had our third monthly decline in a row in pending home sales. Not exactly great news, and in fact it was the third decline in a row and that prompted the Realtors association, a normally pretty happy group, to reduce their forecast for existing home sales to about 3.3% for 2017. Yet another decline, and that would certainly be less than last year's 3.8%. Not great news on housing either.

The third data point that worried me--and this is the one that worries me the most--is that auto sales look like they'll be down at a very low level again in the month of June when that data is reported next week. The preliminary data, three weeks worth of data, suggested to the trade rags that perhaps we'd have yet another month of auto sales at less than a 17 million annual rate. That's worrisome because production of automobiles has remained quite heavy, inventories are quite heavy, and we're afraid that's going to lead to some cutbacks in production of automobiles and motor vehicles in general. That won't be great news for the economy at all.

But we also had some good news this week--most of it on the GDP front. First of all, the GDP estimate--we got the final estimate for the first quarter, and it now looks like growth in the first quarter was 1.4%. That's double the original forecast that the government gave us at 0.7%, so we've had a nice level of improvement there and a lot of that gain has been on the consumer side. Some good news there.

Then some other good news in little things that impact the second-quarter GDP calculation. Inventories have built up a little bit and that's been something that, inventories have been something that have hurt the GDP calculation because they've been declining. The fact they're going to pop back up will give us a little bit of a mechanical boost in GDP, not something that I view as very important, but at least it will help the second quarter.

Also we got some trade data, some very preliminary data, that would also suggest that trade will be less onerous in the quarter and potentially maybe even a small addition to the quarterly results in Q2. Certainly not all bad news there. And we also think the second-quarter GDP will look like 2.5% or so versus that 1.4%, that revised number I just talked about in the first quarter. Certainly looks like a little bit of improvement there.

But I'd caution not to read too much into those GDP numbers because they're rather backward-looking and have some seasonal issues with them that make them less than representative of the data. Going forward we're going to keep a very careful eye on what happens with auto sales, a key driver. We'll see if we get any better news in housing by the end of year, now that rates again are a little lower. Those will all be very important things to watch in the months ahead.