While the retail and manufacturing sectors continue to improve from their spring lows, neither have received the benefits of record low interest rates as much as the housing sector.
In the upcoming light data week, August home sales data will take centre stage.
After double digit gains in July, it’s possible that the rates for existing home sales released on Tuesday and new home sales released on Thursday will slip modestly. Even so, home sales should remain well ahead of their year-ago levels.
One factor that could dampen home sales over the next few months is rising prices. Even with the uptick in home building, it will be impossible for supply to fully catch up with demand in the near term.
The home building data released by the Commerce Department Thursday suggested construction took a breather in August, but a closer look shows that single-family home building did in fact increase to meet the growing demand for larger and more expensive suburban homes. The NAHB’s September home price index hit another record high, suggesting starts and permits will rebound in next month’s data.
September regional conditions data point to faster growth
The Empire State and Philadelphia Fed measures released this week both indicated continued expansion in the Northeast in September. The Empire State index recovered nearly all its August decline, while the Philadelphia Fed region’s measure slipped for a third straight month, but remained solidly positive.
In the upcoming week, regional manufacturing readings from the Richmond and Kansas City Fed banks and services readings from the Richmond, Kansas City and Philadelphia Fed banks will show whether these measures continued to increase in September, or pulled back after across the board gains in August.
The Richmond Fed data will be released on Tuesday and will likely post a third straight reading in positive territory. The bigger question is the services measure, which barely ticked above the breakeven point for the first time in August and could easily tumble backward.
The Kansas City manufacturing data will be released on Thursday and the non-manufacturing data released on Friday. Both were solidly into positive territory in August and should remain there in September.
The Philadelphia Fed services data will be released on Tuesday after remaining just above the breakeven point in July and August.
The first national conditions readings for September, the Markit Flash estimates, will be released on Wednesday. Both the manufacturing and services measures rose in August.
More interesting will be the following week when the Dallas Fed’s measures are released. Hurricane Sally hit the Gulf Coast on September 16, two weeks after Hurricane Laura hit roughly the same area, but this time with even more force.
Initial claims trajectory downward, but just barely
The level of initial claims fell further in the September 12 week, reflecting the impact of the shorter workweek due to the Labor Day holiday. Hurricane Laura had no real effect on the claims data when it hit two weeks ago.
Now comes Hurricane Sally, which slammed into the Gulf Coast with even more force this week. Due to filing issues, there should be fewer new initial claims in Thursday’s report.
Depending on the prevalence of remote working in the region, claims may see a rebound due to temporary layoffs in the coming weeks. It will take some time for businesses and workers to recover after a second straight major storm in a short period of time.
Continuing claims, on the other hand, are likely to remain on its generally downward trend – though not necessarily for the right reasons.
At the risk of sounding like a broken record, the story remains the same. While it is true that some displaced workers are finding jobs and have ceased receiving benefits, there is a bigger issue at play.
Many filers appear to be falling off the continuing claims rolls as the extended 13 weeks of benefits offered by the CARES Act runs out. This is particularly true in states that offer only 13 weeks under normal circumstances, providing six months of total coverage that is now disappearing for those that began receiving benefits in March.
The high level of initial claims will provide some support for continuing claims, but unless the White House and Congress reach some agreement, it’s likely that continuing claims will continue to trend lower.
Separately, from Extract Analytics, the heads up for the upcoming week’s stocks picture sees the pullback ultimately producing the next buying opportunities within healthy drawdown limits.