Bank of the West Outlook Report for May 29, 2015

US Outlook Report: An Encouraging Upward Revision

We got a number of somewhat better U.S. economic reports this week, mostly from the housing market, but the upward revisions in the April durable goods report were the most encouraging development for U.S. economic growth prospects over the near-term.
Prior to the April release, the durable goods reports had been consistently painting a downright dismal picture of future economic activity, at least for the manufacturing and business investment sectors of the economy.  Non-defense capital goods orders, excluding aircraft, contracted for seven consecutive months through March. Non-defense capital goods orders are closely watched because of their correlation to future business investment spending.
The revised April data paint a far less dismal picture.  Non-defense capital goods orders, excluding aircraft, were revised substantially higher for March and January of this year, and November and December of last year.
Importantly, the last two months show respectable monthly gains in non-defense capital goods orders- a far better trend that points to a bounce in economic activity in Q2. Bottom-line: The revised durable goods orders data look more weather driven and thus more transitory than it did before. While the impact of declining investment in the energy sector and a deteriorating trade balance is still highly visible, the rest of the U.S. economy is probably doing okay.
The bright spot for the economy continues to be the prospect of stronger housing activity and consumer spending in 2015. Better-than-expected readings on new home sales and pending home sales for April will help investors look past the weak existing home sales numbers released last week.
To find out more about what this means for the economic and interest rate outlook, check out this week’s US Outlook Report.
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