Heading lower from already depressed levels:

Highlights

The headline shows a decline but the message from the July new home sales report is nevertheless mostly positive. New home sales slipped 1.7 percent in the month to a 627,000 annualized rate that misses Econoday’s consensus by 22,000 and the Econoday’s low estimate by 3,000. Revisions are neutral with June revised 7,000 higher to 638,000 but with May revised 12,000 lower to 654,000.

Now the good news. Supply moved into the market, up 2.0 percent to 309,000 new homes for sale which is the best showing since 2009. More homes for sale gives buyers more choices in what will be a likely positive for sales in the coming months. Relative to sales, supply is at 5.9 months vs 5.7 and 5.5 in the two prior months.

Another positive is a rise in prices, up a sharp 6.0 percent on the month to a median $328,700 for what is still, however, a modest 1.8 percent year-on-year increase.

Regional data show both the West and Midwest posting strong monthly gains with yearly rates at 18.5 percent and 18.2 percent respectively. The yearly rate for the South is at 17.2 percent with, however, the Northeast, which is by far the smallest region for new housing, down nearly 50 percent.

The overall year-on-year rate of growth is at 12.8 percent which if sustained would point to a badly needed uplift for the housing sector in general going into the second-half of what has been a very subdued 2018.

Highlights

Housing is the one sector of the economy not showing any life. Existing home sales managed only a 5.340 million annualized rate in July, missing Econoday’s consensus of 5.420 million for a 0.7 percent dip from June and the fourth decline in a row. This is the lowest rate in 2-1/2 years. Year-on-year, resales are down 1.5 percent.

Both single-family homes and condos show similar weakness, the former down 0.2 percent on the month and down 1.2 percent on the year at a 4.750 million rate. Condo resales, at a 590,000 rate, fell 4.8 percent on the month and are down 3.3 percent on the year. All regions show similar declines on the year with the West posting the only monthly gain in July, at 4.4 percent.

Supply doesn’t offer any relief either, down 0.5 percent to 1.920 million total resales on the market. Relative to sales, supply is unchanged at 4.3 months. And prices fell in the month, down a monthly 1.5 percent to $269,600 for a 4.5 percent yearly gain that stands in contrast to the yearly decline in sales in a comparison that doesn’t point to price traction ahead.

Rising mortgage rates aren’t a plus for housing and neither are construction constraints for labor and materials that are slowing the new home market where weakness bleeds into resales. Third-quarter GDP looks to be very solid but apparently won’t be getting much lift from residential investment.

Home Sales Tumbled In July for the Longest Slump Since 2013

(WSJ) Existing-home sales fell 0.7% in July from June to a seasonally adjusted annual rate of 5.34 million units. That marked the fourth straight month of declines. Compared with a year earlier, sales in July were down 1.5%. The average interest rate on a 30-year fixed-rate mortgage in July was 4.53%, up from 4.03% in January and 3.97% in July 2017, according to Freddie Mac. Sales of homes at the low end of the price spectrum—priced at less than $100,000—fell nearly 11% from July 2017. Sales of homes priced $1 million or more, by comparison, rose 16%.

The July year-over-year export counts were weaker than last month – and imports are now showing a declining trend line.

More Q2 weakness:

Highlights

Consumers credit came in below expectations, up $10.2 B in June as consumers held back from adding to their credit-card debt and even paid off some of it following a spending spree in the previous month. Revolving credit, which includes credit cards and which posted the biggest increase since November in the previous month, fell $0.2 billion in June. Nonrevolving credit, which tracks both vehicle financing as well as student loans, rose a moderate $10.4 billion. The decline in revolving credit suggests the consumer is back to the prudent spending habits characteristic of most the months in the first half of the year.

Getting It Right – Significant Underestimation Of Income

“What is the use of producing data if you cannot get it right? Would we be better off if data were published every five years when it would presumably be more accurate?

One very important takeaway from the new data is that the current economic expansion may have more room to run. For almost two years now we have been saying that consumers spending more than they were making in income was unsustainable. Turns out that they have been living more within their means than we thought and sustainability is less of a concern.”

A lot worse than expected as sales are clearly going south:

U.S. Light Vehicle Sales decrease to 16.7 million annual rate in July

Read more at https://www.calculatedriskblog.com/#ZO2HJY5rKwX1XQfU.99

Highlights

Purchase applications for home mortgages fell a seasonally adjusted 3 percent in the July 27 week, posting the third weekly decline in a row, while applications for refinancing declined 2 percent. Unadjusted, purchase applications were just 1 percent above the level in the same week a year ago. The refinance share of mortgage activity increased by 0.3 percentage points from the prior week to 37.1 percent. Interest rates resumed their climb, with the average interest rate for 30-year fixed rate conforming mortgages ($453,100 or less) rising 7 basis points from the prior week to 4.84 percent.

Highlights

Volatility once again appears in construction spending data as a 1.1 percent June drop was unexpected, coming in far below a plus 0.3 percent consensus gain and Econoday’s low estimate of minus 0.3 percent. Part of the surprise is tied to a sharp 9-tenths upward revision to May, now at plus 1.3 percent, which made the comparison for July more difficult.

Residential spending slowed widely in June especially for new multi-family homes, down 2.8 percent in the month, but also for new single-family homes, down 0.4 percent. Home improvements inched 0.1 percent higher in the month.

Private nonresidential spending slipped 0.3 percent with spending on commercial and power projects down while manufacturing, which had been weak, managed a bounce higher. Public spending on educational projects and highways & streets both declined.

Part of the weakness in construction spending is likely tied to shortages of construction workers, especially skilled labor. High prices for construction materials is another likely negative. And for the residential sector, weakness in new construction will continue to limit buyer choices and overall home sales. Still, stepping back and looking at the year-on-year change offers a reminder that construction is overall very strong, with spending up a year-on-year 6.1 percent.

Doesn’t look strong to me. And these numbers are not adjusted for inflation:

ADP payroll growth:

Another big loss for Tesla, again failing to meet expectations, and cash depleted to $2.2 billion. Stock only up about 5% after hours on expectations for q3… ;)

The benchmark revisions were substantial and the data now paints a very different picture:

Highlights

Easing inflation pressure along with healthy consumer vital signs is the message from the personal income & outlays report for June. Both price indexes, the overall and the closely watched core rate which excludes food and energy, posted only marginal 0.1 percent gains in June with year-on-year rates favorable, at 2.2 percent overall and at 1.9 percent for the core, both unchanged from downwardly revised results in May. The movement in inflation is coming back toward the Fed’s 2 percent target line, not away from it.

Personal income rose a useful 0.4 percent with the wages & salaries component also at 0.4 percent. The savings rate was shifted sharply higher in last week’s benchmark GDP revisions in what is a very fundamental sign of health. The savings rate held unchanged in June at 6.8 percent.

The consumer didn’t dip into savings to keep up spending which was a solid 0.4 percent with May revised sharply upwards, from an initial 0.2 percent gain to 0.5 percent. Spending on services rose 0.6 percent in June to offset what is a small disappointment in today’s report which is no change in spending on durables.

The inflation readings in today’s report are complemented by a little less pressure in the employment cost index which was also released this morning. Together, they ease the pressure on the Federal Reserve and may help to keep down any hawkish edge to Wednesday’s FOMC statement.

The personal savings rate has been substantially revised to now show that the consumer has not been dipping into savings as previously indicated, removing that source of stress:

Nor is consumption growth decelerating as it was before the revisions:

And the downward bend in the personal consumption curve has been revised away as well:

Serious upward revisions for 2017!

June 2018 Pending Home Sales Seasonally Adjusted Index Remains In Contraction Year-over-Year

The National Association of Realtors (NAR) seasonally adjusted pending home sales index improved – yet the year-over-year contraction worsened. Our analysis shows continued worsening of growth.

So the savings rate puzzle, where consumption was exceeding income, has now been reconciled with large upward revisions in personal income. And looks like the credit expansion that supplied the income and drove the spending was from non-residents. The next monthly consumption and income releases will bring it all up to date:

Highlights

Leading a report that speaks to the risk of overheating, consumer spending drove GDP significantly higher in the second quarter, to a 4.1 percent annualized rate which, however, just misses Econoday’s consensus for 4.2 percent. Consumer spending rose at a very strong 4.0 percent rate in the quarter to contribute 2.7 points of the total rate with spending on services contributing 1.5 points. Spending on goods, split roughly evenly between durables and nondurables, contributed 0.6 points.

Net exports were the next biggest contributor, adding 1.1 points and reflecting strong improvement in exports that offset a slight increase in imports. Nonresidential fixed investment contributed 1.0 point to the quarter led by structures and intellectual property with equipment only slightly positive. Government purchases were also a positive contributor at 0.4 points.

Inventories are another major story in this report, falling $27.9 billion for a 1.0 point subtraction from GDP. When excluding inventories (final sales), GDP came in at 5.1 percent. And the pull lower from inventories is actually a positive for the economy, as inventories are too low and need to be rebuilt which should be a positive for third-quarter GDP. Residential investment proved only marginally negative in the second quarter.

To top this very strong report off are price pressures as the GDP price index came in at a very hot 3.0 percent, vs 2.0 percent in the first quarter and exceeding Econoday’s consensus range by 5 tenths. And the core, which excludes food and also energy prices which have been high, shows similar pressure, at 2.7 percent vs the first quarter’s 2.4 percent.

Overheating would appear to be a danger for the economy right now, consistent with the array of regional and private economic data where delivery delays, input costs and even price pass through are at or near record highs. Today’s report includes benchmark revisions including a 2 tenths upgrade to first-quarter GDP which now stands 2.2 percent. Also of note, the savings rate for 2017 is revised much higher to 6.7 percent from 3.4 percent.

Beneath the Surface, a Solid Economy With Room to Run

(WSJ) Exclude the volatile categories of net exports, inventories and government and the Q2 GDP result is 4.3% growth. Over the past year, it’s up 3.2%. Even without the tax cut the consumer would be in great shape. Wage growth remains subdued, but so many people are finding jobs that incomes are rising briskly. Friday’sreport disclosed that wages and self-employed income were much higher in recent years than previously thought. The saving rate instead of sliding to around 3% stands at 6.8%, in line with its average since 2012. The expansion now looks to be in its late middle age, not old age.

This is the quarterly data, just released, that shows a 4% gain for the quarter:

This is from the monthly data- paints a similar but somewhat picture:

This monthly report came out before the revisions:

Today’s quarterly numbers were from the new revised data:

And Fed profits paid to Treasury are no longer in the corporate profit series, slowing reported profit growth:

Corporate debt growth continues to decelerate:

But credit expansion for the rest of world has been accelerating since the presidential election. I don’t have a narrative for that, but seems large enough to explain where the income and spending originated:

Someone else now reads it the way I do- growth has been decelerating since the end of 2014 when oil capex collapsed:

Indications Are The Economy Will Slow With Or Without A Trade War

According to Lakshman Achuthan, Co-Founder & Chief Operations Officer of ECRI

Contrary to the notion of a “strengthening” economy, consumer spending growth has fallen to a 4 ¼-year low, as personal income growth continues to undershoot spending growth.

The consumer — which makes up about 70% of the economy — is getting hit with a six-year highs in inflation, so real wages are actually lower than a year ago.

The tax cuts helped the economy though they were relatively small and largely low multiple, but tariffs are tax increases and work to reduce real consumption if income doesn’t also adjust. Also, there could have been some front running ahead of the dates the tariffs go into effect. This adds volatility to the data.

Highlights

Helping to give a 1.0 percent boost to durable goods orders, aircraft orders did in fact rise sharply in June but still not nearly as much as expected given Econoday’s consensus for a 3.2 percent surge. Civilian aircraft orders rose 15.7 percent in the month but follow sharp declines of 21.0 percent and 39.4 percent in the prior two months. Excluding transportation, durable goods orders managed a moderate 0.4 percent rise to just miss expectations for 0.5 percent.

Strength in the report is centered in core capital goods (nondefense ex-aircraft) where orders rose 0.6 percent to just exceed Econoday’s consensus. Shipments for this reading, which are inputs into GDP, rose a sharp 1.0 percent which should raise estimates for second-quarter nonresidential investment.

Orders for primary metals fell 0.4 percent following May’s 0.1 percent dip, with fabrications, which are indirectly affected by tariffs, up only 0.1 percent in June after a 1.2 percent May decline. These two components make up more than 20 percent of total durable orders. In contrast to the soft new order data, inventories and unfilled orders for both primary metals and fabrications are building sharply.

Total unfilled orders, which have been building in recent months, rose a useful 0.4 percent in June which is another positive for the factory employment outlook. Total shipments surged 1.7 percent while inventories, which were already lean, slipped 0.1 percent. This mismatch drives the inventory-to-shipments ratio down sharply, to 1.60 vs 1.63 in both May and April.

Though aircraft is soft, this is otherwise a very positive report showing solid strength for capital goods. Manufacturing remains one of this year’s top performing sectors.

This is not adjusted for inflation, so just chugging along at modest levels;

Highlights

The goods portion of June’s trade deficit is a bit deeper than expected, at $68.3 billion vs Econoday’s consensus for $67.2 billion. Exports fell 1.5 percent in the month but follow an upward revised 2.6 percent gain in May. Imports rose 0.6 percent and very near an upward revised May increase of 0.5 percent.

There was a very steep decline in exports of consumer goods in June, down 8.5 percent to $16.3 billion, as well as vehicles, down 6.1 percent to $12.7 billion. Capital goods exports, a key U.S. strength, also fell, down 1.8 percent to $47.3 billion. Exports of foods & feeds, which are in focus given trade troubles, dipped 0.5 percent to $14.0 billion.

Imports of consumer goods, the nation’s sore point on trade, jumped 3.6 percent to $53.3 billion with vehicle imports up 1.6 percent to $30.2 billion. Imports of capital goods fell 2.7 percent to $57.4 billion with food & feed imports down 1.7 percent to $12.2 billion.

These results may trim back estimates for net exports in tomorrow’s second-quarter GDP report but they follow very positive results in May and April.

Highlights

Retail inventories were unchanged in June following an unrevised 0.4 percent build in May. The lack of a retail build, together with no change for wholesale inventories in June and a 0.1 percent decline for durable inventories, both also released morning, will be trimming back inventory estimates for tomorrow’s second-quarter GDP report.

Housing continues to roll over and is no negative year over year:

Highlights

Purchase applications for home mortgages fell a seasonally adjusted 1 percent in the July 20 week, while applications for refinancing increased by 1 percent from the previous week. Unadjusted, purchase applications were 2 percent higher than in the same week a year ago. The refinance share of mortgage activity rose 0.3 percentage points from the prior week to 36.8 percent. The average interest rate for 30-year fixed rate conforming mortgages ($453,100 or less) remained unchanged at 4.77 percent. Purchase applications dipped into negative year-on-year territory in June and while managing to post modest gains compared to the year ago level in recent weeks, the jump in financing costs by more than a half of a percentage point since the start of the year (though roughly unchanged since April) is likely to continue to suppress homebuyer appetites. Later this morning, the release of the New Home Sales report for June will provide further insights into homebuyer activity.

Highlights

New home sales unfortunately join the host of housing data showing weakness. Sales fell 5.3 percent in June to a 631,000 annualized rate vs Econoday’s consensus for 668,000. The disappointment comes despite price concessions as the median fell a monthly 2.5 percent to $302,100. Year-on-year, the median is down 4.2 percent vs a 2.4 percent rise for sales.

But good news comes from supply which rose 1.7 percent to 301,000 new homes on the market. Relative to sales, supply is at 5.7 months vs 5.3 and 5.6 months in the prior two months.

New home sales in the West, which is a key region for home builders, fell 5.2 percent with this yearly rate at minus 15.0 percent. The Northeast is the smallest region for new home sales but sales here have been picking up, jumping 37 percent in the month for a 21 percent year-on-year increase. Sales in the Midwest and South were weak in June, down a monthly 13.4 and 7.7 percent respectively.

The Spring selling season was a poor one for the housing sector with both new sales and especially resales showing little life. Less-than-favorable mortgage rates are one reason for the slowing as are constraints on new building including scarcity of skilled construction labor as well as materials.

Rolling over after not even getting to half what they were in the last cycle, and population adjusted they are well below prior cycles:

Chinese investors have become net sellers of U.S. commercial real estate for the first time in a decade, reversing a yearslong trend when these buyers spent tens of billions of dollars and helped boost the market for hotels and other properties.
Chinese insurers, conglomerates, and other investors sold $1.29 billion worth of U.S. commercial real estate in the second quarter, while purchasing only $126.2 million of property, according to data firm Real Capital Analytics. This marked the first time that Chinese investors were net sellers for a quarter since 2008.
The more than $1 billion in net sales reflects how much the Chinese government’s attitude toward investing overseas has changed in recent months.

Puerto Rico still losing people. When the Fed’s take over they don’t work to grow the economy, but only to limit PR gov expenditures to PR tax revenues, which supports a downward spiral:

Trump warns Iran’s President Rouhani: ‘NEVER, EVER THREATEN THE UNITED STATES AGAIN’

President Donald Trump threatens his Iranian counterpart in a Twitter post.

Monday morning, Trump’s hawkish national security advisor, John Bolton, backed the president’s rhetoric.

Tensions between Iran and the U.S. have grown since Trump withdrew America from a nuclear deal struck during President Obama’s administration.