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US Home Sales Centre Stage in Quiet Data Week Ahead

In the lighter data week ahead, the focus will be on new and existing home sales for June, reflecting the extremely low level of mortgage rates offset by continued uncertainty due to the resurgence of COVID cases and the elevated unemployment rate.

In May, existing home sales plunged by 9.7%, a third straight decline. However, existing home sales reflect the conditions that existed a few months earlier when the contract was signed.

As a result, the pace of sales is likely to pick up over the next few months as conditions in May were significantly better than in March and April. That rebound could begin with Wednesday’s June data.

The NAR’s pending home sales index, used as an early measure of actual sales, surged by 44.3% in May, four times larger than expectations. While the index reading of 99.6 was considerably below February’s 111.4 pre-COVID level, it still indicates the positive impact that state reopenings had on buyers.

Increased home building will be needed to sustain this recovery, according to the NAR. In data released Friday morning, building permits rose by 2.1% in June, while housing starts surged by 17.3%. Additionally, the NAHB’s housing market index rose sharply in July, almost reaching its pre-COVID reading.

After three months of declines, new home sales jumped by 16.6% in May, not quite recovering all the losses, but another increase of that size in Friday’s June data would be a very positive sign that buyers are becoming more confident.

The Mortgage Bankers Association’s weekly data continue to indicate strong applications activity which could translate to brisk sales going forward if the resurgence of COVID cases can be contained.

Regional data good start for July manufacturing

The Empire State and Philadelphia Fed readings released this week both indicated expansion. For the Empire region, that was a first since February. The two hardest-hit regions appear to have recovered some of their footing, both in terms of factory conditions and COVID cases.

Now the attention will turn to conditions in the other parts of the country, some of which have seen cases rebound in recent weeks. First up is the Kansas City Fed index on Thursday, which managed to move just above its breakeven point in June.

Following that will be the flash Markit conditions data on Friday, giving the first national reading for July. Other regional data will be released in the following week ahead of the August 3 release of the ISM manufacturing data.

The first look at the nonmanufacturing sector will be on Tuesday, with a reading from the Philadelphia Fed region. The index improved dramatically to -3.6 in June from -68.6 in May, but still indicated contraction. A positive reading for July would bring that survey in line with others, including the national ISM reading, that already pointed to a return to growth last month.

Initial claims changes approaching flat

The level of initial claims remains well over one million, even as other economic indicators showed significant improvement in May and June.

The level of new filings speaks to the difficulty of maintaining staff even as business improves. It is not simply enough to have customers return; the recovery needs to continue after the PPP stimulus money runs out.

Many businesses reopened when they could, but found that the pre-COVID staffing levels they returned to may have been too large for the reduced traffic. Demand has certainly rebounded as restrictions have been loosened, but some consumers remain reluctant, or unable, to spend as they did before the pandemic.

The resulting layoffs pushed many workers back onto government benefits.

Initial claims filings fell by only 10,000 in the July 11 week to an elevated level of 1.3 million. While the level of claims in the July 18 employment survey week is likely to remain below the 1.482 million level in June 20 employment survey week, a positive for payrolls, the gap between the months is getting smaller.

Leading indicators lifted by claims, stock prices

The index of leading indicators rose in May after exceptionally large declines in the previous two months. The same components that drove the May rebound should lift the leading index in June.

Initial jobless claims declined further in the month, albeit at a slower pace, while stock prices moved higher. In addition, the ISM new orders reading surged in May, and manufacturing hours and the pace of building permits both increased. `

Kevin Kastner

Julie Ros

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