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Predictions of red flags earlier in the year now materializing
A combination of weak GDP growth of only +1.2% y/y, tightening lending conditions, and shrinking profits, has come home to roost in the real business economy. As predicted earlier in the year, that combination has caused bankruptcies to rise +5.0% in Q2 after haven gained +4.3% in Q1, the strongest back-to-back increase since the end of the recession. As a consequence, EH may mark up its forecast of an increase in bankruptcies of +3% for all of 2016.
In other news, existing home sales fell -3.2% in July, the first drop since last Feb, putting the y/y rate at -0.8%, the first negative y/y rate since Nov 15. Prices are up 5.3% y/y but they did fall -1.4% in July, also the first drop since February.
Similarly, the minutes of the Fed’s July meeting were somewhat mixed as well. While the Fed gave an upbeat assessment of the economy, describing household spending as “growing strongly” there appeared to be a lack of urgency to hike rates, as some members were content to wait for more data which would indicate further progress towards policy objectives. An interest rate hike in September appears unlikely, but it is still possible in December. Financial markets currently put the odds of a September hike at around 20%, with the odds of a December hike virtually 50%. All that could change on Friday when Fed Chair Yellen speaks at Jackson Hole, Wyoming. Often when the Chair speaks at the annual Jackson Hole retreat, he/she gives clues about the future direction of monetary policy, so the speech is carefully watched.
There is a flood of other data on Friday as well, including the second estimate of Q2 GDP which is expected to be around the original weak 1.2%, corporate profits which are negative y/y, durable goods orders which are volatile but are also negative y/y, and the trade deficit. Unless there are some very unexpected results, Yellen’s speech will likely be the most important event of the day.
Next week is also a data deluge with personal income and consumption, consumer confidence, construction spending, factory orders, international trade, and the ISM manufacturing index. However, again all of those will be overshadowed by the August employment report which will be released next Friday. If it’s much stronger than expected, it could push the Fed to act in a few weeks, but if it’s as expected or weaker, then December remains the more likely month for an increase. And that report will come just before the long Labor Day weekend, potentially sending markets scrambling.
Economic News: Dan North, Euler Hermes North America, talks housing, the Fed and economic red flags #buy #homes in the #USA #realestate
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