Economic Highlights for the Week Ending July 28th

Monday, July 24th
Fed funds futures traders were pricing in higher odds Monday that the Fed will raise key short term interest rates in August. Odds of a rate hike next month stood at roughly 47% today up from 34% last Friday. Upcoming data central to the interest rate outlook this week are new and existing home sales Tuesday & Thursday and the advance estimate of second quarter GDP on Friday.
Tuesday, July 25th
The slowdown in the housing market continued last month as existing home sales fell 1.3% in June to a seasonally adjusted annual rate of 6.6 million units. The inventory of available homes for sale continues to climb higher under softened demand, rising 3.8% to 3.7 million units which reflect a 6.8 months supply at the current sales pace.
The consumer confidence index rose to 106.5% in July from 105.7% in June. Higher ratings in both index components, expectations and the present situation contributed to July’s gain. While consumers are still fairly positive about jobs and the labor market, gas prices would need to move lower in order for confidence levels to improve further from here.
Wednesday, July 26th
The MBA mortgage applications index fell 1.3% to 533.8% for the week that ended July 21. The purchase index dropped 2.4% on the week while refinancings drifted 0.6% higher. Both home buying and refinancing application volumes continue to trend lower under higher rates. As housing market activity slows so does its contribution to economic growth.
The Fed's round up of economic activity across the twelve Federal Reserve banking districts known as the beige book and compiled in preparation for the FOMC meeting in August, indicated that growth slowed in most parts of the country in June and early July. Manufacturing was strong, residential investment slowed and consumer spending weakened. While high input costs were noted in many areas there was less pass through to retail prices. Labor markets tightened but wage gains do not pose a threat to inflation at this time.
Thursday, July 27th
New orders for durable goods jumped 3.1% in June better than an expected 2.0% gain. June's gain was led by strong demand for transportation equipment especially civilian and military aircraft. Excluding the transportation sector, durable goods orders rose 1.0%. Durable goods orders remain volatile, with hug swings related to aircraft orders, but they are trending higher overall.
New home sales fell 3.0% in June to a seasonally adjusted annual rate of 1.131 million. Moreover, May sales were revised sharply lower from 1.234 million to 1.166 million. New home sales, while still volatile, have been trending lower since peaking last July.
Mortgage rates tumbled this week on signs that the economy may be cooling. Slower economic conditions could help ease inflationary pressures making another Fed rate hike unnecessary. 30-year fixed rate mortgages averaged 6.72% this week compared to 6.80% last week according to Freddie Mac's mortgage market survey.
Friday, July 28th
The economy grew at a 2.5% annual rate in the second quarter, compared to expectations for a 3.1% gain. Growth was boosted by service sector gains but limited by slower consumer spending. GDP gained 3.5% over the past year, in line with longer term averages. Economy wide inflation showed some acceleration with the core index gaining 2.9% in Q2 up from 2.1% in Q1.
The employment cost index rose 0.9% in Q2 after rising 0.6% in Q1. Wage growth is up slightly but offset by a deceleration in benefit costs. Over the past year labor compensation increased a tame 3.0%.

WEEK IN ADVANCE
Modest second quarter growth lowered rate hike expectations. The financial markets are clearly leaning toward a pause in August. One more major piece of data remains before the next FOMC meeting. The employment report showing job growth and hourly earnings due out on Friday is crucial to the Fed's policy decision.