Net Foreign Security Purchases for May rose to $60.0B versus estimates of $60.0B and $47.8B in April. International investors increased their holdings of US assets in May by the most since February as the world’s largest economy outperformed rivals in Europe and Asia, Bloomberg reported. The US economy expanded 3.7% in the first quarter, the most of any Group of Seven industrialized country. Caribbean holdings, which analysts link to hedge funds located in the region, only increased by $1.3 billion. Japan accounts for $685.7 billion of Treasuries held by overseas investors, followed by China with $243.5 billion and the UK with $132.5 billion. "There is renewed foreign interest in the US," said Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto. "The US is not having any trouble financing its current-account deficit," Gregory said.
Housing Starts for June were 2004K versus estimates of 2050K and 2004K in May. Building Permits for June rose to 2111K versus estimates of 2085K and 2062K in May. US housing starts were unchanged in June, suggesting builders may have paused to finish homes already under construction, Bloomberg reported. Backlogs jumped to a 26-year high, while permits rose. Backlogs rose 7.8% to 241,000 units at an annual rate, up 19% from June 2004.
The US economy is in a "sustained" expansion that will require the central bank to continue raising interest rates at a "measured" pace, Federal Reserve Chairman Greenspan told the House Financial Services Committee. "Our baseline outlook for the US economy is one of sustained economic growth and contained inflation pressures," Greenspan said.
Initial Jobless Claims for last week fell to 303K versus estimates of 325K and 337K the prior week. Continuing Claims fell to 2577K versus estimates of 2589K and 2618K prior. The number of US workers filing first-time applications for state jobless benefits fell to 303,000 last week, the lowest level since April, as automakers completed factory retooling more quickly than government statisticians expected, Bloomberg reported. The decline was the largest since December 2002. The four-week moving-average of claims fell to 318,000 from 321,250. The insured employment rate, which tracks the US unemployment rate, fell to 2.0% from 2.1%.
Leading Indicators for June rose .9% versus estimates of a .5% increase and an upwardly revised 0.0% change in May. The Leading Indicators report shows the first major revision in how the index is compiled since 1996. Higher consumer confidence, building permits and stock prices spurred gains in the index.
Philly Fed for July rose to 9.6 versus estimates of 10.0 and a reading of -2.2 in June. Manufacturing in the Philadelphia region rebounded this month after a first-quarter inventory build prompted companies to place fewer orders, Bloomberg reported. Manufacturing is gaining traction after slowing in March and April as companies such as GM reduced inventories that swelled earlier in the year, Bloomberg reported. "The soft readings on the economy are over," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi. "The survey snapped back smartly and this bodes well for economic activity in coming months," said Rupkey.
BOTTOM LINE: Overall, last week's economic data were positive. I expect foreign demand for US assets to continue increasing as the dollar remains firm, US economic growth stays healthy and global growth slows. Housing starts will likely increase near-term as builders try to work off the record backlog amid an all-time high home sales pace in the first half. I continue to believe housing will remain strong by historic standards with price appreciation moderating but not plunging. The Fed will likely continue to raise rates at a "measured" pace as the economy has accelerated modestly from its recent "soft patch." I do not believe they are overly concerned with inflation anymore, however worries over the housing market and the desire for more ammunition in case of an emergency will prompt further hikes. The labor market appears to accelerating, however it is hard to gauge at this particular time. The sharp gain in the leading indicators bodes well for future economic readings. As I stated last week, manufacturing is improving after an inventory adjustment period and should begin adding to growth again over the coming months. Finally, the ECRI Weekly Leading Index rose .90% to 134.70 and is forecasting moderately accelerating healthy growth.
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