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Last week, US economic data came out mixed. This week is a make it break it week, leading to the end of the month and final numbers before the Fed Reserve makes a decision. It needs to be the turnaround month for the Obama Administration if Obama wants a second turn in the White House.
The housing data confirmed a positive trend but the retail sales continued to disappoint. This week, the eco calendar remains enticing with the durables, Richmond Fed index, Michigan consumer confidence and the new home sales, but the focus will be on the second quarter GDP data.
After a strong end of 2011, GDP growth slowed during the first three months of the year and a further slowdown is forecast for the second quarter. The consensus is looking for an annualized growth figure of 1.4% Q/Q, down from 1.9% Q/Q in the first quarter of the year. Growth in household consumption probably eased further, although it continued to support growth. Also residential and non-residential investments are forecasted to contribute positively, while government consumption will remain a serious drag on growth. Also net-exports are forecast to weigh on growth, most likely together with inventories. We believe that the risks might still be on the downside of expectations and that also the details won’t reveal any encouraging news.
After the NY Fed and Philly Fed index last week, the Richmond Fed manufacturing index is scheduled for this week. After falling for two consecutive months, the Richmond Fed manufacturing index is forecast to show a slight rebound in July. The consensus is looking for an increase from -3 to -1, but we remain cautious after the weakening in orders last month.
In June, US durable goods orders are forecast to have risen for a second straight month in June. After increasing by 1.3% M/M, US durables are forecast to have risen by a more moderate 0.4% M/M in June. Excluding transportation, durable goods orders are forecast to have risen by only 0.1% M/M. A slight increase in non-defense aircrafts is expected, but also sales of motor vehicles and parts are expected to have risen. We have no strong reasons to distance ourselves from the consensus.
Regarding the housing market data, the new home sales report is the most interesting release of the week. After falling for two consecutive months, new home sales rebounded in May, rising by 7.6% M/M. For June, another, albeit small increase is expected, by 0.3% M/M to a total level of 370 000. We believe that the risks remain for a stronger reading as housing market sentiment is improving and new home sales profit from record low borrowing costs.
Nevertheless, though credit standards and the high unemployment rate remains a hurdle, while also the inventory of new homes for sale remains low.
The final figure of July Michigan consumer confidence is expected to confirm the first estimate, which showed a decline from 73.2 to 72.0, the lowest level since December last year. Economists believe however that sentiment might have brightened slightly in the meantime as also sentiment on financial markets improved somewhat.