Q2 Economic Growth Gangbusters, But Q3?

Posted on September 27, 2015 by Popular Economics Weekly

Popular Economics Weekly

In spite of all those predictions that GDP growth would exceed 3 percent for the rest of the year and into 2016, the latest factory orders and inflation indicators show a slowdown in Q3 from Q2’s gangbusters growth, probably thanks to China’s abrupt downturn in manufacturing.

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Graph: Trading Economics

Q2 GDP was revised higher from its earlier 3.7 percent estimate. Personal spending was stronger than thought in the second quarter, helping to drive real GDP to a very solid 3.9 percent annualized rate. Boosted by the consumer, final sales also rose 3.9 percent for a 4 tenths upward revision.

Personal consumption expenditures were the main reason, revised 5 tenths higher to 3.6 percent as the service spending component, reflecting strength in travel, was revised 7 tenths higher to 2.7 percent. So consumers are spending more, thanks to the good jobs numbers.

Revisions to goods spending were mixed with durable goods that last more than 3 years down 2 tenths to a vehicle-led surge of 8.0 percent with nondurables up 2 tenths to 4.3 percent. Consumer strength is also evident in a 1.5 percentage point upward revision to residential fixed investment, now at 9.3 percent.

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Graph: Econoday

But what else is driving growth, finally? Nonresidential fixed investment, driven by structures, is revised 9 tenths higher to 4.1 percent. But new-home sales are also surging, as builders try to catch up with the now severe shortage in new housing due to the housing bust. Another plus in the report is a downward revision to inventory growth.

New home sales can be very volatile month-to-month as they are in the August report where, at 552,000, the annual rate came in far above the high-end estimate. This is the highest rate since February 2008. Adding to the momentum is a 15,000 upward revision to July.

In especially welcome news for builders, the sales strength pulled supply relative to sales even lower, to 4.7 months from 4.9 months. Still, low supply is a constraint on sales in contrast to pricing which remains favorable, at a median $292,700 for a 0.5 percent gain on the month but at a paltry year-on-year gain of only 0.3 percent. By comparison, the year-on-year sales gain is 22 percent.

Existing home sales came in at a lower-than-expected 5.31 million annual rate in August which is the lowest since April. Though July was revised down just slightly but is still an 8-year high at 5.58 million. With the in dip sales, supply relative to sales is less tight, at 5.2 months from 4.9 months in the prior two months. But there’s still a lack of homes on the market, evidenced by a comparison with the year-ago supply at 5.6 months.

Now we have to begin to guess at Q3 growth. China’s slowdown and the strong Dollar (U.S. now the fastest growing western economy, by the way) have hurt exports. That and the current oil oversupply have brought down inflation, which might keep Yellen’s Fed from raising interest rates this year at all, as we have been saying. But it also means lower growth in the factory sector, and manufacturing over all.

So it will be up to consumers and the service sector of domestic consumption to keep us above 3 percent growth in Q3. Consumer sentiment is one indicator of how consumers feel, and they are remaining optimistic, in spite of the plunge in stock prices, of late.

Consumer sentiment popped up as expected from stock-market depression at mid-month, to 87.2 for final September from 85.7 for the flash. Still, September’s final reading is the weakest since October last year. The expectations component, which tracks the jobs outlook, improved 1.2 points from mid-month to end September at 78.2 which is the lowest reading since September last year, says Econoday. The current conditions component, which tracks ongoing strength in the jobs market, rose 9 tenths to 101.2 for the lowest reading since October.

So stay tuned to the Fed’s next 2 FOMC meetings this year, and we will know if Yellen and Company dare to raise interest rates at all.

Harlan Green © 2015

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The Results of Being the Dumb Down Party

Posted on September 19, 2015 by Popular Economics Weekly

Financial FAQs

We saw in the latest CNN Republican candidate debate the results of what seems to be a prolonged campaign to discount almost all scientific facts, as well as intelligent discussion of the most important issues of the day.

Especially scary was Donald Trump saying if we build up our military enough, we won’t have to negotiate with anybody. Or Marco Rubio, a seemingly moderate Republican, endorsing a 1,900 mile fence along our entire border with Mexico (or double fence, says Dr. Ben Carson) over mountains and rivers, or Carli Fiorina saying that Planned Parenthood was aborting live babies to harvest their organs.

Global warming is one of the most important issues today, since there is almost unanimous agreement among scientists that it is manmade and rising alarmingly. Hence the record heat waves, cold spells and catastrophic storms the world has been experiencing recently. Yet thanks to the funding of multibillionaires like the Koch Brothers, none of the Republican Presidential candidates said they believe global warming is manmade, or even real.

What is the reason Republicans have become the party of anti-intellectuals—some even want to abolish the Department of Education, and otherwise defund public education? Journalist Chris Hedges said in a PBS interview President Clinton in coopting moderate Republican positions, such as deregulation of the financial industry, putting 100,000 more cops on the street, and ‘reforming’ welfare, had driven the Republican Party to “insanity”.

But the anti-intellectual, anti-science bias goes much further and deeper. It is in fact an almost totally American phenomenon that Republicans have taken advantage of, in an attempt to dumb down the electorate to levels that would even deny evolution. Why would anyone not want to support public education, when it educates more than 80 percent of our students? The result is that higher education is also falling behind.

According to the National Research Council, only 28 percent of high school science teachers consistently follow the National Research Council guidelines on teaching evolution, and 13 percent of those teachers explicitly advocate creationism or "intelligent design," said Psychology Today in a very damning 2014 article entitled, Anti-Intellectualism and the Dumbing Down of America:

“After leading the world for decades in 25-34 year olds with university degrees, the U.S. is now in 12th place,” said

Psychology Today. “The World Economic Forum ranked the U.S. at 52nd among 139 nations in the quality of its university math and science instruction in 2010. Nearly 50 percent of all graduate students in the sciences in the U.S. are foreigners, most of whom are returning to their home countries”

Republican candidates were echoing the Republican platform that advocated the deportation of all illegal aliens, would abolish or cripple whole government agencies (including the Environmental Protection Agency), shut down the federal government over Planned Parenthood funding, and maintain that a fertilized egg is a viable human being that can’t be aborted.

Pundits give other reasons for such a dumbing down of a segment of the electorate—such as social media and television replacing literacy, or education that no longer teaches math and science or even history. Maybe that has enabled the Donald Trumps of the world to shout louder. The danger is that it may drown out any intelligent discourse about the most important issues of our day. It’s driving at least one of our political parties into insanely ridiculous positions, at the moment.

Harlan Green © 2015

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Don’t Count On Inflation Moving Federal Reserve

Posted on September 17, 2015 by Popular Economics Weekly

Popular Economics Weekly

The Federal Reserve didn’t raise interest rates today at the close of their FOMC meeting. In fact the 9-1 vote against raising rates wasn’t even close. So don’t count on inflation to save the day for the deficit hawks demanding that the Fed must raise interest rates.

Inflation is not imminent or even possible in today’s low demand, slow growth, and world-wide economies. It ain’t going to happen. Inflation won’t happen, not only because the Asian tigers are overproducing and under pricing everything—hence China’s problem—or that many economists now believe in the so-called ‘new normal’ of slower economic growth model, due to slowing population and labor productivity growth.

Here is the U.S. CPI, or retail inflation rate. It’s basically zero or negative, and has been since January 2015.

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Graph: Trading Economics

The eurozone’s inflation rate is no higher, in spite of their Austerians’ (read German) insistence that it’s right around the corner (if only growth would increase). It experienced its second recession in 2011, and growth hasn’t really recovered with an 11 percent plus average unemployment rate throughout the eurozone, except in Germany.

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Graph: Trading Economics

Because it’s as much due to misguided government policies by the modern Austerians that have stopped eurozone growth by demanding draconian cuts in government spending and budget deficits that would create growth. But U.S. austerity advocates have damaged our growth, as well, with measures such as our current sequester agreement that caps government spending.

The result is very little investment in the areas that increase future growth, such as modernizing public infrastructure, increasing educational opportunities, and Research & Development that got us to the moon and created the Internet.

Yes, it is those politicians and the economists supporting them that are destroying our seed corn that nurtures future growth. There is no incipient inflation, nor will there be for years to come. The disinflationary spiral world economies are currently experiencing are due as much to misplaced policies and ideologies that don’t create growth as to slower population growth in the developed economies.

How then will those that want to continue the trickle down economic policies that say only the wealthiest are able to create more growth with their $Trillions, to justify transferring so much of the nation’s wealth to those overpaid CEOs and hedge fund managers?

Harlan Green © 2015

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Construction, Retail Sales Higher

Posted on September 15, 2015 by Popular Economics Weekly

The Mortgage Corner

The strength of the economy right now is in the housing and construction sectors, again areas insulated from global factors, such as China’s slowdown. Construction spending, next to vehicle sales, is perhaps the week’s best surprise, rising 0.7 percent for a second straight month, and 13.7 percent annually. Why? Rents are rising fast, which means many householders will start thinking about whether buying with today’s ultra-low mortgage rates as the better alternative.

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Graph: Econoday

The Econoday graph shows the slope has steepened nicely in the spring and summer. The latest gain is centered in the most important component of all, single-family homes where construction spending rose 2.1 percent in the month for a year-on-year gain of 15.8 percent. Multi-family homes slowed in the month but the year-on-year rate, reflecting demand tied to high rents, is still outstanding at 21.2 percent.

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Graph: Econoday

And auto sales are up a surprising 1.5 percent to a 17.8 million annual rate, with 14.1 million sales of domestic-made vehicles. The gain points to another strong month for retail sales in what would underscore the insulated strength of the domestic economy. It was outsized strength in the auto sector that supported the factory sector in June and July, though August’s sales gain was centered in foreign-made vehicles. Still, sales of domestic-made cars and light trucks, which make up 80 percent of all sales, are at very strong levels.

In fact, retail sales just in this morning show a 2.2 percent annual gain, with strong sales in auto and food service. It could ave been above 3 percent if gas prices hadn’t fallen, but then would consumers be buying as much if gas prices were higher? This should mean Q3 GDP growth will again exceed 3 percent, following a revised Q2 reading of 3.7 percent by the BEA.

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Graph: Calculated Risk

Will more renters be buying homes this year? The best way to compare rents to housing prices is the price-to-rent ratio. It is leveling off, which means rents are rising as fast as housing prices—some 5 percent of late.  (Whereas during the housing bubble prices were rising twice as fast as rents.) Combine that with conforming 30-year fixed mortgage rates of 3.75 percent in California, and we will have more renters looking to buy a home this and next year if interest rates hold. And the tax advantages of owning vs. renting really mean it’s more advantageous to buy over the longer term, rather than give those tax advantages to a landlord.

Harlan Green © 2015

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What Should Yellen’s Fed Do?

Posted on September 11, 2015 by Popular Economics Weekly

Popular Economics Weekly

The big question hovering over the markets (both stocks and bonds), is whether the Federal Reserve will finally begin to raise short term interest rates at next week’s FOMC meeting. Markets are uncertain, and only a few economists are saying anything. Why? Because of a tremendous (and artificial) fear of higher inflation, which shouldn’t be fearsome at all.

Nobelists Joseph Stiglitz and Paul Krugman say there is absolutely no reason to begin to raise the rock bottom interest rates yet. There’s still too many out of work—so much so, that wages and salaries are barely rising.

“If the Fed focuses excessively on inflation, it worsens inequality,” says Professor Stiglitz, “which, in turn, worsens overall economic performance. Wages falter during recessions; if the Fed then raises interest rates every time there is a sign of wage growth (a major effect on inflation), workers’ share will be ratcheted down, never recovering what was lost in the downturn.”

And much income has been lost, as Professor Krugman and the EPI have pointed out for years.

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Graph: EPI

“Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity,” say the EPI authors. “In fact, hourly compensation has almost stopped rising at all. Net productivity grew 72.2 percent between 1973 and 2014. Yet inflation-adjusted hourly compensation of the median worker rose just 8.7 percent, or 0.20 percent annually, over this same period, with essentially all of the growth occurring between 1995 and 2002.”

The question is why the Fed is even discussing the possibility of higher rates with so many still out of work. There has to be some kind of mismatch in this picture, as a record 5.8 million job openings (yellow line in graph) were just reported in Labor Department’s Job Openings and Labor Turnover Survey.

The number of hires and separations edged down to 5.0 million and 4.7 million, respectively. Within separations, the quits rate was 1.9 percent for the fourth month in a row, and the layoffs and discharges rate declined to 1.1 percent. This means that

There were 2.7 million quits in July, little changed from June. Although the number of quits has been increasing overall since the end of the recession, the number has held between 2.7 million and 2.8 million for the past 11 months. Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs.

So what is Chairperson Yellen and the Fed Governors to do? Their goal is to maximize the purchasing power of consumers that power most economic growth. If consumers can’t or won’t spend more, then economic growth is stuck.

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Year-on-year wage growth is 2.2 percent, slightly higher, but inflation is falling, which means there are still too many out of work. The only way to increase wage growth is to allow a tighter labor market, which means keeping rates low as long as possible, without causing excessive inflation.

In fact, even 4 percent inflation would be preferable as a way to boost both jobs and economic growth. But will policy makers even allow such a thing? That’s the real (political) problem—the misconceptions about inflation.

Harlan Green © 2015

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Unemployment Report Misleading

Posted on September 5, 2015 by Popular Economics Weekly

Financial FAQs

Today’s lower than predicted payroll creation of 173,000 jobs doesn’t change my prediction of higher jobs growth ahead. My prediction yesterday was for 250,000 payroll jobs in August, but downward seasonal adjustments reduced payrolls by -800,000. In other words 800,000 jobs were stricken from the unadjusted numbers, because it’s the end of summer and lots of summer jobs normally disappear with the back-to-schoolers this month (but -800,000?..I don’t think so.).

In fact, -293,000 construction jobs were subtracted in the seasonal adjustment, because fewer jobs were added in past years. Yet real estate construction is booming in both residential and non-residential sectors this year, so instead of -10,000 fewer seasonally adjusted construction jobs in the report, later adjustments could add some of the -293,000 jobs back.

And confirming this are past months’ revisions. The pace of hiring in July and June was stronger than initially reported, according to a survey of business establishments (i.e., the payroll survey). The Labor Department said 245,000 new jobs were created in July instead of 215,000. June’s gain was revised up to 245,000 from 231,000 for a total of 44,000 jobs added back from the seasonal adjustment figure.

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Graph: Marketwatch

The good news was that governments mostly at the local level added 33,000 payroll jobs, and wages are rising. The nation’s unemployment rate fell to 5.1 percent from 5.3 percent, marking the lowest level since April 2008 just as the Great Recession was beginning.

The jobless rate is determined by a separate survey of households that showed a sharp 237,000 drop in the number of people who said they were unemployed. Only a smattering of people dropped out of the labor force.

The improvement in the labor market also appears to be forcing more companies to increase pay to attract or maintain workers. The average hourly wage paid to American workers rose 8 cents, or 0.3 percent, in August to $25.09 an hour. From August 2014 to August 2015 hourly wages rose 2.2 percent, matching the best gain of the past four years.

Harlan Green © 2015

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Higher Productivity, Jobs, Could Mean 3.5 percent GDP

Posted on September 3, 2015 by Popular Economics Weekly

Popular Economics Weekly

It looks like we are returning to the goldilocks economy that prevailed for much of last year—low inflation and interest rates plus continued good job growth. But it also could mean better economic growth that has stayed in the 2 percent range during the Great Recession recovery to date. With Q2 GDP growth revised upward to 3.7 percent, and a solid ADP private payroll jobs report yesterday, we should have higher economic growth for several quarters exceeding 3.5 percent, at least.

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Graph: Econoday

ADP, in the July employment report, sees private payrolls rising 190,000 in August, which is a sizable 20,000 below the consensus and right at the low estimate, says Econoday. The government’s private payroll reading was 210,000 in July and is expected to come in at 211,000 in August. But we see the BLS Friday unemployment report at 250,000 plus due to the very low initial weekly unemployment claims of 270,000 lately. There will of course be some seasonal adjustments cutting back payrolls as the summer workforce declines for the back to schoolers, but that is usually corrected in later revisions.

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Graph: Econoday

Labor productivity rose a huge 3.3 percent in Q2, as the gain in productivity in turn drove unit labor costs 1.4 percent lower. This is well down from the prior estimate of plus 0.5 percent and is the sharpest drop since the second quarter of 2014. Output rose 4.7 percent in the quarter while hours worked rose only 1.4 percent with compensation up only 1.8 percent, hence the surge in the GDP numbers for output and consumer spending.

China’s slowing manufacturing sector and recent Yuan devaluation will not hurt U.S. growth, nor will the stock market correction. The main reason for China’s slowdown is cheaper manufacturing costs in neighboring countries that is benefiting Vietnam, and even India. Japanese brokerage Nomura has projected Indian GDP growth at 8 percent in fiscal year 2016, in part because of cheaper commodity prices, since India has to import some 80 percent of raw materials for its manufacturing sector. It could even benefit U.S. manufacturers, as China exports are shrinking at the moment (the reason for Yuan devaluation).

In fact, stock values no longer drive most of U.S. growth, a fact that has been known to many macro economists for years. Consumer spending makes up some 70 percent of GDP activity these days. Business investment follows consumer demand, so when consumer spending rises, as it is now doing, so does the demand for business investment. Stocks today benefit holders of stock options for the most part, as well as Flash Traders, and only secondly retirement pension plans over the long run.

What would put icing on my growth prediction would be higher government spending on public projects, now growing far below its historical trend. Should conservatives give up on their attempts to choke off badly needed public spending on infrastructure and R&D (which boosts productivity even more, don’t forget), and is another component of GDP, we can then be assured of GDP growth returning to longer term historical rates for years to come.

Harlan Green © 2015

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Construction Leads Housing, GDP Recovery

Posted on September 1, 2015 by Popular Economics Weekly

The Mortgage Corner

Pending home sales are still rising. And that’s in large part because both residential and non-residential commercial construction is in fact soaring. The U.S. Census Bureau of the Department of Commerce announced today that construction spending during July 2015 was estimated at a seasonally adjusted annual rate of $1,083.4 billion, 0.7 percent above the revised June estimate of $1,075.9 billion. The July figure is 13.7 percent above the July 2014 estimate of $952.5 billion.

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Graph: Calculated Risk

This is huge, and another sign that housing this year may keep average U.S. GDP growth above 3.5 percent for the rest of 2015 and beyond, as the just revised Q2 growth rate of 3.7 percent is indicating. Housing has been the sluggard as a growth component in this recovery to date, but 2015 looks like the year that it breaks out.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.5 percent to 110.9 in July from an upwardly revised 110.4 in June and is now 7.4 percent above July 2014 (103.3). The index has increased year-over-year for 11 consecutive months and is the third highest reading of 2015, according to the National Association of Realtors.

On a year-over-year basis, private residential construction spending is up 16 percent. Non-residential spending is up 18 percent year-over-year, and public spending is up 6 percent year-over-year, reports Commerce.

That’s also why newly built, single-family home sales rose 5.4 percent to a seasonally adjusted annual rate of 507,000 units in July, according to HUD and the U.S. Census Bureau.

“This report is in line with other government data and improving builder sentiment and shows a gradual but consistent housing recovery,” said NAHB Chief Economist David Crowe. “As job growth and consumer confidence continue to strengthen, the housing market should make additional gains this year.”

Economists had forecasted gross domestic product would be revised up to 3.3 percent in Q2, but business investment was stronger than expected. Business investment helped, but it was consumers, buoyed by low interest rates and inflation boosting their confidence in future jobs and rising incomes that got them spending again.

The Commerce Department said investment in nonresidential structures was revised to show an increase rather than a contraction, reflecting stronger spending on commercial and healthcare construction. Spending on residential construction, which includes brokers’ commissions, was also raised from 6.6 to 7.8 percent. More gains are likely this quarter after the Pending-Home sale report showed an increase in contracts to purchase previously owned homes (i.e., existing-homes) in July.

The large spending uptick on private construction was at a seasonally adjusted annual rate of +1.3 percent (±1.0%). Residential construction was at a seasonally adjusted annual rate of $380.8 billion in July, 1.1 percent (±1.3%). Nonresidential construction was at a seasonally adjusted annual rate of $407.0 billion in July, 1.5 percent (±1.0%).

This can only mean more jobs are being created in construction and Professional Services in the upcoming Friday unemployment report. More good news for U.S. jobs growth, in other words.

Harlan Green © 2015

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Consumers Lead Growth, and Business Investment

Posted on August 27, 2015 by Popular Economics Weekly

Financial FAQs

The U.S. economy grew at a faster 3.7 percent annual clip in the second quarter, up from the initial estimate of 2.3 percent, the Commerce Department said Thursday. Why was that a surprise to those short sellers afraid of Chinese market contagion, now that the DOW and all stock indexes have soared over the past 2 days?

It’s a repeat performance of the past 2 years. Those severe winters stopped growth in the first quarters of 2014 and 2015, which then snapped back once the Polar Vortex deep freeze melted away. Q1 GDP grew just -0.9 and + 0.6 percent, respectively during those winters. But the Q2s rebounded to 4.6 and 3.7 percent, respectively, once Spring came. So China’s economic ups and downs have had very little effect on U.S. growth.

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Graph: Trading Economics

Economists had forecasted gross domestic product would be revised up to 3.3 percent, but business investment was stronger than expected. Business investment helped, but it was consumers, buoyed by low interest rates and inflation boosting their confidence in future jobs and rising incomes that got them spending again. There were no ‘confidence fairies’ worried about budget deficits, in other words.

Consumer spending, always the main engine of U.S. economic activity, led the way. Spending was revised up to 3.1 percent from 2.9 percent in the second quarter after a sluggish 1.8 percent gain in the first three months of the year. No wonder, when eastern and Midwestern shoppers could barely venture from their homes during the deep freeze.

And newly revised figures from the Commerce Department show that businesses invested at a faster rate. Businesses increased investment by 3.2 percent increase instead of a drop of 0.6 percent, with spending on structures such as office buildings rising by 3.1 percent instead of an initial drop of 1.6 percent.

This is huge for real estate, in part due to lower interest rates holding down construction costs. But there was also a large build in retail inventories in anticipation of back to school and holiday shoppers. The value of inventories, which adds to GDP, increased by $121.1 billion in the second quarter instead of a previously estimated $110.0 billion.

In fact, it was real (after inflation) final sales to private domestic purchasers up 3.3 percent, a measure of activity without inventories, that did the most to boost GDP growth.

The bottom line is that consumer confidence is soaring to new heights, as we said yesterday. An enormous improvement in the current labor market (e.g., rock bottom initial unemployment claims) drove the consumer confidence index well beyond expectations, to 101.5 in August for a more than 10 point surge from July. A rare 6.5 percentage point drop to 21.9 percent in those describing jobs as currently hard to get points to outsized gains for the August employment report.

Why is this a surprise? With the unemployment rate down to 5.3 percent, and more than 8 million jobs created since 2008, maybe consumers are finally convinced the U.S. economic growth is for real. The gain for this confidence reading lifts the present situation component, a near term confidence reading, to 115.1 for a more than 11 point increase over July that points to consumer power for August (and maybe September, October, then into the holidays).

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Graph: Econoday

With consumer spending soaring, corporate profits continue to surge, hence the increase in business investment. Just reported profits in the second quarter came in at $1.824 trillion, up a year-on-year 7.3 percent.

So let’s not forget that gas prices are closing in on $2 per gallon in many parts of the country, which holds down inflation, which in turn boosts incomes. So consumers are beginning to show they are the real beneficiaries of lower oil-energy prices, no inflation pressures, and rising incomes.

Harlan Green © 2015

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Better Economic Growth Coming?

Posted on August 26, 2015 by Popular Economics Weekly

Popular Economics Weekly

Barron’s economist Gene Epstein forecasts the possibility tomorrow’s Q2 GDP growth could be revised from 2.3 to 3.5 percent. I believe he’s a bit optimistic, but today’s snapback of stocks does mean that emerging market problems may have panicked the day traders that are seldom interested in fundamentals.

Those fundamentals are impressive—durable goods orders are up, and consumer confidence is soaring. New-home sales are advancing due to rock bottom interest rates, thanks in part to plummeting oil prices. And gas prices in some east coast areas are close to $2 per gallon. That is boosting retail sales and Fall season back to school spending.

Consumer confidence is soaring to new heights. Econoday reports “Enormous improvement in the assessment of the current labor market drove the consumer confidence index well beyond expectations, to 101.5 in August for a more than 10 point surge from July. A rare 6.5 percentage point drop to 21.9 percent in those describing jobs as currently hard to get points to outsized gains for the August employment report.”

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Econoday

This reading will have forecasters scratching their heads. The gain for this reading lifts the present situation component to 115.1 for a more than 11 point increase from July that points to consumer power for August.

And consumer spending is consequently soaring. Big upward revisions underscore a very solid and very important retail sales report. Retail sales rose 0.6 percent in July with June revised to unchanged from an initial reading of minus 0.3 percent and with May revised to a jump of 1.2 percent from 1.0 percent. The revisions to June and May point to an upward revision for second-quarter GDP.

Exports have been weak but they didn’t hold down July’s durable orders which, for a second straight month are strong and strong nearly across the board. New orders rose 2.0 percent in the month which easily beat out top-end Econoday expectations for 1.2 percent. Excluding transportation, orders rose 0.6 percent which is near the top-end forecast for 0.7 percent. Capital goods data show special strength with nondefense ex-aircraft orders up 2.2 percent following June’s 1.2 percent gain and with related shipments up 0.6 percent following a gain of 0.9 percent.

Lastly, even new-home sales have picked up, which gives a boost to economic growth within the construction, insurance, and professional occupations. New home sales rose solidly in July from a downdraft in June, up 5.4 percent to a 507,000 annual pace. Year-on-year, sales have surged, up 26 percent. The strength in sales has thinned an already tight market where supply is at 5.2 months, down from 5.3 months in June and compared with 6.1 months a year ago.

Harlan Green © 2015

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