Bank of the West US Outlook Report: No Worries Mate- Rebound Continues
You might actually get a restful August vacation in this year. With Greece well on its way towards another bailout package, and China managing to calm its stock market plunge, there appears a window of opportunity for U.S. domestic demand to blossom uninterrupted by negative economic and financial headlines around the world.
It has been another week of better readings on U.S. housing, initial jobless claims, and leading economic indicators, suggesting the economic rebound begun in the second quarter will carry-on and accelerate in the second half of 2015 – just as we have been forecasting. We will get our first hint next Thursday with the release of the advance estimate of U.S. GDP growth for the second quarter. We are looking for a 2.6% annualized growth pace on real GDP driven by healthy real consumer spending growth of 2.7% and nearly 9.0% annualized growth in residential investment. That is a decent step up from the -0.2% performance in the first quarter.
Some of the Highlights This Week:
WTI crude oil prices dropped below $49.00 per barrel yesterday, and with the end of the summer driving season approaching, retail gasoline prices should follow suit. This will add to consumers’ disposable spending power at a time when wages appear to already be inching higher.
National home purchase prices are now just a hair’s breadth, 1.8% away, from their previous peak in March 2007.
Existing home sales jumped 3.2% in June and are now nearly 10% above year ago levels, but what is more impressive is the fact that existing home sales have already returned to pre-bubble levels.
The Conference Board’s Leading Economic Indicators index over the last three months has been rising like it did before last summer’s growth explosion, implying stronger second-half growth ahead.
Implications For the Federal Reserve:
I believe the labor market recovery is far enough along and the economic expansion is enduring enough to prompt the first Federal Reserve rate hike at the September FOMC meeting. But before September, we have the July FOMC meeting next week that will be closely scrutinized by the markets for clues on the FOMC’s evolving views on the economy.
Another focus will be whether their forward guidance on rate hikes will change to better signal to the markets an impending rate hike in September. While I think a September rate hike is likely, I don’t expect the FOMC to tip its hand at the July meeting. They don’t want to cause a premature tightening and hope to maintain the flexibility of their data dependency right up until the live meeting.
To find out more, check out this week’s US Outlook Report.
Tags: economy, united states