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This past week had a number of pluses and minuses for economic news. Data were mixed relative to the current month and to the prior month, reflecting volatility in some sectors. Net, it was not great but certainly looked good compared to Europe. And earnings continued to be more on the positive side.
 Equities ended the week up although it certainly did not look that way at the start of the week. Eurozone worries spiked along with the yield on Spain’s 10-year bond which hit a euro-era high and bumped stocks down. Spain announced a ban on short sales of stocks for three months, while Italy banned short sales of stocks in the financial sector for one week. Also, an advisor to the People's Bank of China stated that the country’s growth could slow in the third quarter. European worries carried over to Tuesday, weighing on equities. Also, UPS—seen as a bellwether for the economy—lowered its earnings forecast. After U.S. markets closed, Apple reported third quarter profit of US$9.32 per share on revenue of US$35 billion which were both below expectations. Economic news was mixed Tuesday with Markit PMI positive, FHFA house prices up, but Richmond Fed sharply down.
Disappointing results at Apple and a dip in new home sales pushed stocks down Wednesday in early trading but positive reports from Boeing and Caterpillar were largely offsetting, leaving equities mixed but mostly little changed.
Stocks got plenty of lift Thursday after ECB President Mario Draghi said that the Bank would do what is necessary to protect the euro. Initial jobless claims declined to near a four year low. However, claims data have been volatile of late due to the changing pattern of summer factory shutdowns for retooling. Also, durables orders topped expectations at the headline level. Partially offsetting was a drop in pending existing home sales. Earnings reports were mixed but mostly positive. But equity gains Thursday were really about euphoria from Draghi’s comments and increased expectations of easing by central banks. Friday continued the theme of increased expectations of monetary ease. Also, advance second quarter GDP topped expectations although posting anemic growth.
Equities were up this past week. The Dow was up 2.0 percent; the S&P 500, up 1.7 percent; the Nasdaq, up 1.1 percent; the Russell 2000, up 0.6 percent; and the Wilshire 5000, up 1.4 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 7.0 percent; the S&P 500, up 10.2 percent; the Nasdaq, up 13.5 percent; the Russell 2000, up 7.4 percent; and the Wilshire 5000, up 9.6 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields firmed this past week with Friday showing the only significant daily movement. But at the start of the week, yields eased Monday and Tuesday, primarily on flight to safety over worries about sovereign debt as Spanish and Italian yields jumped. After a flat Wednesday, Treasury rates bumped up Thursday on comments by European Central Bank President Mario Draghi that the ECB whatever is necessary within its mandate to maintain the euro.
This reversal of flight to safety continued Friday especially after a report that the ECB is planning to buy securities in both secondary and primary markets. Additionally, German Chancellor Angela Merkel and French President Francois Hollande repeated their pledge to maintain the Eurozone.
For this past week Treasury rates were up as follows: 3-month T-bill, up 1 basis point; the 2-year note, up 3 basis points; the 5-year note, up 7 basis points; the 7-year note, up 9 basis points; the 10-year note, up 7 basis points; and the 30-year bond, up 6 basis points.
 The spot price of West Texas Intermediate ended the week down. The biggest of the week was on Monday as crude dropped 3-1/2 bucks a barrel on Eurozone worries. The next four trading days, crude edged up as those concerns eased. Adding to gradual lift were tensions in Syria, a favorable flash PMI for China, a drop in U.S. initial jobless claims, and second quarter GDP coming in a little higher than expectations.
Net for the week, the spot price for West Texas Intermediate dropped $1.31 per barrel to settle at $90.13.
The economy clearly has slowed but growth remains positive, although with shifts in sector strength.
 The recovery lost steam in the second quarter. GDP growth decelerated to 1.5 percent annualized from 2.0 percent in the first quarter. The latest report included annual revisions and the first quarter was revised up slightly from 1.9 percent. The advance estimate came in higher than the consensus forecast for a 1.2 percent rise.
The component mix showed a slowing in demand. Final sales of domestic product increased an annualized 1.2 percent in the second quarter after a 2.4 percent rise in the first quarter. Final sales to domestic purchasers (excludes net exports) gained 1.5 percent, following a 2.2 percent advance in the prior quarter. First quarter final sales numbers were revised up moderately.
Deceleration in the second quarter came largely in consumer spending with PCEs posting at 1.5 percent in the second quarter versus 2.4 percent the prior quarter. Also slowing were nonresidential structures to up 0.9 percent from up 12.9 percent and residential structures to up 9.7 percent from up 20.5 percent. Imports worsened to up 6.0 percent from up 3.1 percent.
Improvement was seen in business equipment, up 7.2 percent versus up 5.4 percent in Q1; inventory investment rose moderately; and exports gained 5.3 percent compared to 4.4 percent.
Economy-wide inflation rose an annualized 1.6 percent, compared to 2.0 percent in the first quarter, according to the GDP price index.
The only notable good news for the latest quarter is that growth was a little higher than expected. The second quarter growth rate was too low to bring down unemployment and growth needs to pick up to lower unemployment. The big question is whether the latest report motivates the Fed to loosen monetary policy. There was no indication of deflation—one of the key triggers for further easing. And growth was not atrocious though certainly anemic. There will be a lively debate at the July 31-August 1 FOMC but any policy change likely will be tweaking rather than a major initiative.
 The latest number for sales of new homes was down notably but in the context of earlier gains and revisions were not so bad.
New home sales dropped 8.4 percent in June, but followed gains of 6.7 percent in May and 1.7 percent in April. June's decline to an annual sales rate of 350,000 was offset in part by a 13,000 upward revision to May to 382,000 which was the highest rate in more than 2 years when government programs were stimulating sales. Further offsetting the June disappointment was a 15,000 upward revision to April which is now at 358,000.
The dip in June sales gave a lift to the supply reading which still, at 4.9 months at the current sales rate, is very tight which is a factor that is limiting sales. All in all, this report was not so bad especially if sales pick up again in the July report.
 Pending home sales of existing home sales have been volatile recently with the latest swing being down. The index for pending sales of existing homes fell 1.4 percent in June but followed a strong 5.4 percent gain the prior month.
Lack of supply appears to be an increasing negative in the housing sector. The National Association of Realtors, which compiles the pending sales report, blamed inventory shortages for today's weakness. But shortage of inventory, and hopefully with it higher home prices, should pull more existing homes into the market and will encourage builders in the new home market. Also, by region, weakness was most pronounced in the Northeast which was hit by bad weather.
 More progress is being made in the housing sector as home prices are actually having a string of gains. The FHFA home price index in May increased 0.8 percent, following a 0.7 percent boost in April. June’s figure was the fourth increase in a row. The year-on-year rate is up 3.7 percent, compared to up 3.0 percent in April.
Seven of the nine Census Divisions posted gains in May, led by a 1.7 percent rise for the Pacific region. Only the West South Central region declined—by 1.0 percent—while the East South Central region was flat.
 The headline looked good but the core did not. Manufacturing surveys have been suggesting that this sector has lost steam and even shrunk a bit. And the latest durables orders report from the government did not add much clarification except for aircraft.
New factory orders for durables jumped 1.6 percent in June after rebounding 1.6 percent in May.
Overall orders were mostly boosted by transportation which spiked 8.0 percent in June, following a 3.7 percent increase the prior month. Both nondefense and defense aircraft orders rose sharply while motor vehicles edged down.
Excluding transportation, durables orders fell 1.1 percent following a 0.8 percent gain in May. Outside of transportation, weakness was widespread in June though following a notable gain in May.
Investment numbers have been volatile but on average are a positive. Nondefense capital goods orders excluding aircraft declined 1.4 percent but followed a sizeable 2.7 percent surge in May. Shipments for this series rose 1.2 percent in Junes after gaining 1.1 percent in May.
Overall, manufacturing appears to have lost momentum outside of nondefense aircraft and business equipment. However, motor vehicles are holding up well also—which is not surprising given relatively strong motor vehicle sales in recent months.
 Recent manufacturing surveys have been mixed but even at best show a decelerating manufacturing sector. At the national level, the Markit Economics' flash PMI slowed to 51.8 from June's revised 52.5. Breakeven is 50.
New orders were still above 50 though they were down nearly 2 points to 51.9. Weakness in new export orders, at 48.2 and below 50 for a second straight month, was a key factor and no doubt reflects weakness in Europe and possibly Asia as well. Total backlog is also in contraction for a second straight month, at 48.7 versus 49.6 in June.
Output still showed a monthly gain but at a slower rate than June, and inventories were building though only slightly.
This report is not signaling contraction for the manufacturing sector but it does not paint a rosy picture either.
 The latest reports from Fed District banks pointed in opposite directions.
The Richmond Fed manufacturing index fell sharply to minus 17 to show very deep contraction versus only fractional contraction in June of minus 1. New orders, the life blood of business, plunged to minus 25 from June's already very weak minus 7. Backlogs, at minus 27, extended their run of deep contraction.
Shipments showed roughly the same degree of contraction as new orders while inventories were on the rise, a build that is likely unwanted given the weakness in orders.
 In contrast to Richmond, the Kansas City Fed manufacturing survey showed improvement in July, though remained sluggish. The composite index rose to 5 from 3 in June, indicating a marginally stronger growth rate. But the details were mixed.
The production index decelerated to 2 from 12 in June. New orders improved but remained in negative territory, rising to minus 4 from minus 7. A positive was the number of employees index which improved to 6 from 3. Inventories rose with the materials index gaining to 13 from 5 in June and the finished goods inventories index jumping to 9 from minus 2.
The latest Kansas City Fed report was a relatively favorable report for July compared to Richmond Fed and even Markit flash PMI. But manufacturing news seems to be wavering from positive and sluggish to slightly down.
 Consumer spirits were flat in July, according to the Reuters/University of Michigan's consumer sentiment index which finished the month at 72.3 for a marginal 3 tenth gain from mid-month and a 9 tenths decline from June.
The best news was in the assessment of current conditions where the index was at 82.7 which is down 5 tenths from mid-month but up 1.2 points from June. This reading hinted at steady readings for July's data related to the consumer including jobs and spending.
The outlook, however, is deteriorating but only slightly with the expectations index at 65.6 which is up 8 tenths from mid-month but down 2.2 points from June. Lack of confidence was also reflected in the 12-month outlook where the index posted at 74 for the final reading for July versus 77 at mid-month and June's 79.
The economy is muddling forward but at least it is forward. Despite monthly volatility, housing appears to be on a mild uptrend. Manufacturing, however, may have hit the pause button in industries outside of aircraft and autos. The consumer sector is not back to the point of contracting but it also has lost momentum—almost certainly due to anemic job growth. The big issues in the very near term are whether the Fed can really do anything more and whether companies are boosting jobs. Further out, the pending fiscal cliff still looms.
First Friday is back and that means a highlight is the employment situation. But there will be earlier news on the wavering consumer sector, including personal income, consumer confidence, the ADP private employment report, and motor vehicle sales. Manufacturing also has been wavering and key updates will come from Markit PMI and ISM manufacturing. But at mid-week, competing for the week’s highlight will be the Fed’s FOMC statement and whether there is any new policy initiative.
The Dallas Fed general business activity index in its Texas manufacturing survey rebounded to plus 5.8 in June from minus 5.1 the month before. Other measures of current activity generally improved in the latest month. The production index jumped to 15.5 from 5.5 in in May. Also, gaining were capacity utilization, new orders, unfilled orders, shipments, delivery time, number of employees, and average workweek. Specifically, the new orders index rose to plus 7.9 from minus 0.6 in May.
Dallas Fed general business activity index Consensus Forecast for July 12: 2.5
Range: -2.0 to 6.5
Personal income in May rose 0.2 percent, matching the pace in April. The key wages & salaries component was unchanged, following a 0.1 percent increase in April. Consumer spending in May was unchanged, after edging up 0.1 percent the prior month. Turning to inflation, lower oil prices weighed on the numbers. The headline PCE price index declined 0.2 percent, following no change in April. The core rate rose 0.1 percent in both May and April. More recently, overall aggregate earnings posted a substantial 0.7 percent increase, pointing to a healthy number for the wages & salaries component of personal income. But spending is likely to be mixed by components. Excluding motor vehicles, retail sales decreased 0.4 percent in June. However, unit new motor vehicle sales posted a 2.2 percent monthly gain. PCE inflation is also likely to be mixed. For June, the headline CPI was flat while the core rose 0.2 percent.
Personal income Consensus Forecast for June 12: +0.4 percent
Range: +0.2 to +0.5 percent
Personal consumption expenditures Consensus Forecast for June 12: +0.1 percent
Range: 0.0 to +0.3 percent
PCE price index Consensus Forecast for June 12: +0.1 percent
Range: -0.3 to +0.1 percent
Core PCE price index Consensus Forecast for June 12: +0.2 percent
Range: +0.1 to +0.2 percent
The employment cost index rose 0.4 percent in the first quarter. The gain was one tenth below the quarterly rate in the fourth quarter, but details showed solid acceleration for the wage component, up 0.5 percent versus the fourth quarter's 0.3 percent rise. Growth in wages has been slow and flat the last several years and has been lagging growth in benefits which rose 0.5 percent following the fourth quarter's 0.7 percent surge. Year-on-year rates show how much benefits are ahead, at plus 2.7 percent for benefits versus plus 1.7 percent for wages.
Employment cost index Consensus Forecast for Q2 12: +0.5 percent
Range: +0.4 to +0.8 percent
The S&P/Case-Shiller 20-city home price index (SA) in April surged 0.7 percent. This was an unusually large gain, last exceeded in April 2010 and before that in August 2009. Importantly, April's gain was also the third in a row which is the longest streak since early 2010. Unadjusted data, which are followed in this report, likewise showed strength with a 1.3 percent monthly gain. The year-on-year rate posted at minus 1.9 percent.
The S&P/Case-Shiller 20-city HPI (SA, m/m) Consensus Forecast for May 12: +0.5 percent
Range: 0.0 to +0.8 percent
The S&P/Case-Shiller 20-city HPI (NSA, m/m) Consensus Forecast for May 12: +1.2 percent
Range: +1.0 to +1.5 percent
The S&P/Case-Shiller 20-city HPI (NSA, y/y) Consensus Forecast for May 12: -1.4 percent
Range: -2.6 to -0.8 percent
The Chicago PMI edged up in June to 52.9 from 52.7 the prior month. But the weakest reading for new orders since September 2009 pointed to slowing conditions for Chicago-area businesses. The 51.9 new orders reading in June's MNI Chicago report was still over 50 to indicate growth relative to May but only marginal growth which contrasts with robust growth, including a reading near 70, as recently as February.
Chicago PMI Consensus Forecast for July 12: 52.5
Range: 49.0 to 54.3
The Conference Board's consumer confidence index fell 2.4 points in June to 62.0, the lowest reading since January. This was the fourth straight decline for the longest losing streak of the recovery. Weakness was centered in the consumer's view of the future with substantially more, 16.2 percent versus 12.9 percent in May, saying business conditions will worsen over the next six months. Fewer consumers see job availability improving over the next months and fewer see an increase ahead for their income. This last reading is a big negative for retailers which may begin to plan for less business during the holiday season. The assessment of current conditions was steady and soft.
Consumer confidence Consensus Forecast for July 12: 61.5
Range: 59.0 to 65.0
Sales of total light motor vehicles in June rebounded 2.2 percent to a 14.1 million annual rate from May's rate of 13.8 million. Strength was in domestic cars which jumped 5.5 percent and in domestic light trucks, up 3.6 percent, for combined domestic units of 11.1 million annualized versus 10.6 million in May. Car imports fell 6.9 percent while light truck imports dropped 2.0 percent for a combined 3.0 million units after 3.2 million in May.
Motor vehicle domestic sales Consensus Forecast for July 12: 11.0 million-unit rate
Range: 11.0 to 11.1 million-unit rate
Motor vehicle total sales Consensus Forecast for July 12: 14.0 million-unit rate
Range: 13.8 to 14.4 million-unit rate
ADP private payroll employment came in with an estimated rise of 176,000. This compared with a revised increase of 136,000 in May. This compared to the later estimate by BLS for private payrolls at 84,000 for June.
ADP private payrolls Consensus Forecast for July 12: 120,000
Range: 75,000 to 166,000
The Markit PMI manufacturing index for the U.S. eased marginally to 52.5 in June versus the flash estimate for 52.9 and down from 54.0 in May. The report said the results showed the weakest rate of growth in 18 months. The new orders index eased but remained notably positive—53.7 in June, compared to 54.6 in May. Plant managers were still somewhat optimistic as the report's sample continued to add to its workforce, though at a slower rate—52.8 versus 54.3 in May.
No consensus forecasts are available for this week.
The composite index from the ISM manufacturing survey in June declined to 49.9 (breakeven at 50) from 53.5 in May. Forward momentum hit the wall at the new orders index, at 47.8 in June versus 60.1 the month before to show contraction for the first time since April 2009 and the degree of the decline was the steepest since October 2001. For what it’s worth, the October 2001 drop in orders was followed by an almost equal rebound the next month and was above the pre-drop level the second month afterwards.
ISM manufacturing composite index Consensus Forecast for July 12: 50.1
Range: 48.5 to 51.1
Construction spending jumped 0.9 percent in May, following a 0.6 percent gain in April. The increase in May was led by private residential outlays which increased 3.0 percent after a 1.7 percent boost in April. Also behind the latest gain was a 0.4 percent rise in private nonresidential outlays. In contrast, public outlays declined 0.4 percent in May after a 0.9 percent drop the prior month.
Construction spending Consensus Forecast for June 12: +0.5 percent
Range: -0.2 to +0.8 percent
The FOMC announcement at 2:15 p.m. ET for the July 31-August 1 FOMC policy meeting is expected to leave policy rates unchanged. However, the key issue is whether the recovery has slowed enough to motivate the Fed to engage in additional policy easing. Already, the second of Operation Twist extends through December and FOMC members likely had hoped that put new initiatives off the table until after the presidential election. At a minimum, the statement likely will be more shrill about the dangers of the pending fiscal cliff.
FOMC Consensus Forecast for 8/1/12 policy vote on fed funds target range: unchanged at a range of zero to 0.25 percent
Initial jobless claims for the July 21 week, claims fell 35,000 to nearly fully reverse the prior week's revised 36,000 jump. For the 3 prior weeks, claims fell a total of 40,000. The Labor Department, against the backdrop of summer auto retooling, strongly recommends watching the 4-week average for initial claims, and the average is offering a favorable indication for the July employment report. The 4-week average is down 8,750 in the July 21 week to 367,250 which was down a sizable 20,000 or so from the trend in June.
Jobless Claims Consensus Forecast for 7/28/12: 370,000
Range: 340,000 to 380,000
Factory orders rebounded 0.7 percent in May, reversing April's revised 0.7 percent decline but still well short of reversing March's 2.1 percent plunge. Orders for durable goods rose 1.3 percent, which was upwardly revised from the prior released advance 1.1 percent gain, while orders for non-durable goods rose 0.2 percent. More recently, new factory orders for durables jumped 1.6 percent in June after rebounding 1.6 percent in May.
Factory orders Consensus Forecast for June 12: +0.7 percent
Range: -0.5 to +1.1 percent
Nonfarm payroll employment advanced a modest 80,000 in June, following gains of 77,000 in May and 68,000 in April. The unemployment rate remained elevated and unchanged at 8.2 percent in June. Private payrolls advanced 84,000 in June after gaining 105,000 the prior month. Average hourly earnings improved to a 0.3 percent boost from 0.2 percent in May. The average workweek edged up to 34.5 hours from 34.4 in May.
Nonfarm payrolls Consensus Forecast for July 12: 100,000
Range: 70,000 to 165,000
Private payrolls Consensus Forecast for July 12: 110,000
Range: 80,000 to 180,000
Unemployment rate Consensus Forecast for July 12: 8.2 percent
Range: 8.1 to 8.3 percent
Average workweek Consensus Forecast for July 12: 34.5 hours
Range: 34.4 to 34.5 hours
Average hourly earnings Consensus Forecast for July 12: +0.2 percent
Range: +0.1 to +0.3 percent
The composite index from the ISM non-manufacturing survey in June slipped to 52.1 versus 53.7 in May but it was still safely above the 50 level under which monthly contraction is indicated. The new orders index was the most important component and it posted at 53.3, compared to 55.5 the prior month.
ISM non-manufacturing composite index Consensus Forecast for July 12: 52.0
Range: 51.5 to 53.0
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009.
Econoday Senior Writer Mark Pender contributed to this article.
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