Did the economy bounce back in the second quarter?
This week’s economic releases will reveal whether growth accelerated in the second quarter after a sluggish start to the year. A busy week also features a Federal Reserve meeting that’s not expected to include an interest rate hike and the latest reports on home sales and business investment.
Existing home sales have increased solidly this year but have been restrained by skimpy supplies. In May, sales edged up 1.1% despite an 8.4% drop in inventories from a year ago, notes Nomura economist Lewis Alexander. He says job growth has been healthy, fueling demand. Yet sales are likely to remain choppy until the stock of homes on the market expands. Economists estimate the National Association of Realtors will report that home sales dipped 1.2% in June to a still-sturdy seasonally adjusted annual rate of 5.6 million.
Consumer confidence hit a 16-year high in March, but has edged down since. Job growth remains healthy and gasoline is cheap, but economists cite doubts among Republicans about President Trump’s proposed tax cuts that have grown with the setback in efforts to replace the Affordable Care Act. The Conference Board is expected to report that its consumer confidence index slipped further in July to a still-sunny reading.
After raising interest rates last month for the second time this year, the Fed is likely to pause at a meeting as it awaits a pickup in inflation. Yet many economists believe the central bank will provide another signal that it’s set to begin reducing its $4.5 trillion asset portfolio in September. Fed Chair Janet Yellen told Congress last week that initiative, which will gradually push up long-term rates, should start “relatively soon.” The Fed expanded the balance sheet after the financial crisis to lower rates for mortgage and other borrowers. Now, some Fed officials worry low rates could drive investments from bonds to riskier assets, creating bubbles that might burst and trigger another downturn.
Business investment picked up early this year but was tepid for much of the second quarter. Economists figure the Commerce Department will announce that orders for capital goods excluding aircraft and defense — a reading tantamount to capital spending — rose a respectable 0.4% in June.
Commerce releases its report on economic growth in the second quarter. The economy grew at a 1.4% annual rate in the first quarter — below the recovery’s 2% average — as sluggish consumer spending offset strong business investment. In the April-June period, consumer spending accelerated, due to a pickup in service outlays, Alexander says. Meanwhile, business investment increased modestly while weak housing starts and the widening U.S. trade deficit subtracted from growth, Barclays says. Economists estimate Commerce will announce that the economy grew at a solid 2.5% pace last quarter.