MARKET WEEK: JULY 31, 2017

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Last Week’s Economic Headlines

• Slowing inflation was the primary reason the Federal Open Market Committee decided to keep the target range for the federal funds rate at its current 1.00%-1.25% range following last week’s meeting. The Committee noted that the labor market has continued to strengthen and household spending and business fixed investment have continued to expand. However, overall inflation has declined, while wage inflation has remained low. The FOMC does not meet again until September.

• The initial (advance) estimate of the gross domestic product showed the second-quarter economy grew at a healthy annual rate of 2.6%. In the first quarter, the GDP increased 1.2%. The acceleration in GDP growth in the second quarter reflected a smaller decrease in private inventory investment, an acceleration in personal consumption expenditures, and an upturn in federal government spending. These movements were partly offset by a downturn in residential fixed investment and decelerations in exports and in nonresidential fixed investment. Disposable personal income increased $122.1 billion, or 3.5%, in the second quarter, compared with an increase of $176.3 billion, or 5.1%, in the first quarter (revised). It’s important to note that the initial estimate of the GDP is based on source data that is incomplete and subject to revision.

• Good news for domestic manufacturers as new orders for long-lasting goods increased $14.9 billion, or 6.5%, in June. This increase follows two consecutive monthly decreases. However, the gain in new orders is attributable, in large part, to transportation, particularly aircraft. New orders excluding transportation increased only 0.2%. Shipments of manufactured durable goods in June, down three of the last four months, decreased $0.1 billion to $236.0 billion. This followed a 1.2% May increase. Unfilled orders for manufactured durable goods in June, up three of the last four months, increased $14.2 billion, or 1.3%, to $1,135.6 billion. This followed a 0.1% May decrease. Inventories continued to build, increasing $1.6 billion, or 0.4%.

• Following a surge in May, sales of existing homes fell 1.8% in June. Despite last month’s decline, June’s sales pace (5.52 million) is 0.7% above a year ago, but is the second lowest of 2017 (February, 5.47 million). The demand for existing housing remains strong, but a dearth of supply and climbing prices have kept interested buyers at bay. Total housing inventory at the end of June declined 0.5% to 1.96 million existing homes available for sale — 7.1% lower than a year ago. Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.6 months a year ago. The median existing-home price for all housing types (single family, condos, townhouses, and co-ops) in June was $263,800, up 6.5% from June 2016 ($247,600). June’s median sales price surpassed May as the new peak after registering the 64th straight month of year-over-year gains.

• Sales of new single-family homes were only marginally better in June than existing home sales. New single-family home sales were at a seasonally adjusted annual rate of 610,000 — 0.8% above the revised May rate of 605,000 and 9.1% above the June 2016 estimate of 559,000. The median and average sales prices decreased in June from May. The median sales price of new homes sold was $310,800 ($324,300 in May). The average sales price was $379,500 ($381,400 in May). The seasonally adjusted estimate of new houses for sale at the end of June was 272,000, which represents a supply of 5.4 months at the current sales rate.

• The trade deficit decreased in June. The international trade deficit was $63.9 billion in June, down $2.5 billion from May. Exports of goods for June were $128.6 billion, $1.8 billion more than May exports. Imports of goods for June were $192.4 billion, $0.7 billion less than May imports.

• The Conference Board Consumer Confidence Index® rose to 121.1 in July, up from 117.3 in June. Surveyed consumers expressed growing optimism in the present state of the economy and the short-term outlook. On the other hand, the University of Michigan’s Surveys of Consumers had consumer sentiment fall from 95.1 in June to 93.4 in July. This is still 3.8% higher than the reading from July 2016. Survey respondents were bullish about current economic conditions, but not so optimistic concerning future prospects for the economy.

• In the week ended July 22, the advance figure for seasonally adjusted initial claims for unemployment insurance was 244,000, an increase of 10,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 233,000 to 234,000. The advance seasonally adjusted insured unemployment rate remained 1.4%, unchanged from the previous week’s unrevised rate. During the week ended July 15, there were 1,964,000 receiving unemployment insurance benefits, a decrease of 13,000 from the previous week’s unrevised level.

Eye on the Week Ahead

Two important economic reports are out this week: personal income and outlays and the employment situation. The FOMC relies on the price index of the personal income and outlays report as an indicator of inflationary trends. On the employment front, June’s report was mixed — as new hires increased, while wage growth was marginal at best. July’s employment report is not expected to change much.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

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