Stabilizing economy may bring rate hike
A busy week of economic news will provide key readings on business investment, the housing market and how strongly the economy bounced back from a weak first quarter. A Federal Reserve meeting could provide clues on whether the central bank’s first hike in interest rates in nearly a decade will be on the table.
A closely watched measure of business capital spending fell 0.4% in May and has been weak since last summer as low oil prices reduced drilling activity and a strong dollar hurt manufacturers’ exports. But oil prices and the dollar have stabilized in recent months, notwithstanding recent volatility. Economists surveyed by Bloomberg expect the Commerce Department to report
Monday that core capital goods orders, which exclude aircraft and defense, rose 0.5% in May. Economists expect business investment to gradually strengthen in the second half of the year.
More encouraging news has come from the housing market, with home sales and housing starts accelerating. Home prices have stabilized recently, rising about 5% on an annual basis for several months. Economists estimate that on Tuesday the S&P/ Case-Shiller Home Price Index for 20 large cities will post a 5.6% annual rise for May.
The Fed meeting Wednesday could be the last before it raises interest rates. The door to a September hike at least has been opened after the unemployment rate fell to a seven-year low of 5.3% last month, weak inflation showed signs of ticking up and a bailout deal for Greece was struck. But the Fed has made clear it will make decisions based on the latest economic data, and RBC Capital Markets doesn’t think it will tip its hand.
A variety of indicators reveals the economy bounced back in the second quarter. But by how much?
Consumer spending and the housing market likely bolstered growth, while business spending continued to be a drag. Economists surveyed by Bloomberg expect the Commerce Department on Thursday to report solid second-quarter growth of 2.5% at an annual rate.
Commerce also will revise GDP growth data over the past three years. That’s expected to show a slightly faster expansion.