This week brings a light menu of economic news, but with the Federal Reserve heralding a possible interest rate hike next month if the economy picks up, all reports in coming weeks will be closely scrutinized. This week’s data should reveal whether new-home sales are revving up for the spring buying season, business investment is finally bouncing back and economic growth in the first quarter was really as feeble as first estimated.
New-home sales dipped in March for the third straight month, surprising economists, who generally see solid housing fundamentals. Job growth has been strong, household debt is low and there’s a skimpy supply of existing homes for sale. On the downside, a shortage of construction workers has driven up laborers’ wages and new-home prices even as buyers’ incomes have risen only gradually. Yet Lewis Alexander, chief U.S. economist of Nomura, believes the positive factors should drive a spring rally, citing recent solid readings on homebuilder sentiment, single-family housing starts and building permits. Economists estimate the Commerce Department on Tuesday will report that new-home sales ticked up 1.8% in April to a seasonally adjusted annual rate of 520,000.
Sluggish business investment has been perhaps the biggest drag on economic growth. A weak global economy and strong dollar have curtailed U.S. exports, while oil drilling and related orders for pipes have plunged in response to low crude prices. The past couple of months, the greenback has weakened and oil prices have risen, theoretically supporting an improved climate for business outlays. And the Fed said last week that factory output increased in April. Troubles overseas will likely continue to weigh on business investment, Oxford Economics says, but the research firm expects rising consumer spending to underpin measured gains. Economists expect Commerce on Thursday to report a modest 0.3% rise in orders for long-lasting, durable goods and a similar increase in capital goods orders excluding aircraft and defense — a proxy for business investment.
On Friday, the government looks further back in the rearview mirror as it releases a revised estimate of first-quarter economic growth. Its initial reading showed the economy expanded a meager 0.5% at an annual rate in the first quarter as a result of listless business expenditures and just a modest gain in consumer spending. Figuring the performance wasn’t quite as weak as first believed, Alexander predicts that consumer spending and residential investment estimates will be revised up and that a pullback in business stockpiling subtracted less from growth. All told, economists expect Commerce on Friday to announce that the economy grew 0.9% at an annual rate the first three months of the year, still paltry but nearly double its previous appraisal.
