The ISM Manufacturing Index is expected to increase to 55.5 in tomorrow’s update for June—a marginal gain vs. the previous month, based on The Capital Spectator’s median econometric forecast.
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Keeping interest rates for too low for too long risks another financial crisis, warns the Bank for International Settlements (BIS) in its newly published annual report. The concern is that while economic growth is still modest at best, financial markets are “extraordinarily buoyant”, in no small part due to extraordinarily easy monetary policies around the globe. The disconnect, if left unchecked, threatens to foster bubbles that could eventually reverse and create new macro troubles, the BIS says.
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● The Mystery of Market Movements: An Archetypal Approach to Investment Forecasting and Modelling
By Niklas Hageback
Summary via publisher, Wiley
There has long been a notion that subliminal forces play a great part in causing the seemingly irrational financial bubbles, which conventional economic theory, again and again, fails to explain. However, these forces, sometimes labeled ‘animal spirits’ or ‘irrational exuberance, have remained elusive – until now. The Mystery of Market Movements provides you with a methodology to timely predict and profit from changes in human investment behaviour based on the workings of the collective unconscious. Niklas Hageback draws in on one of psychology’s most influential ideas – archetypes – to explain how they form investor’s perceptions and can be predicted and turned into profit.
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Yesterday’s personal income and spending report for May matched expectations on the income side of the ledger but fell short of the consensus forecast for consumption. Some analysts warn that the surprisingly weak growth rate for spending last month (+0.2% vs. the consensus forecast of +0.4%) casts a shadow over the projected snapback in second-quarter GDP. But focusing on the monthly income and spending data can be misleading–especially if we’re looking at one monthly release. By contrast, the year-over-year changes offer a more reliable measure of the trend and by that yardstick the latest release offers another round of modest encouragement.
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Professor Robert Shiller at Yale says that the US stock market may be in nosebleed territory. “It looks to me like a peak,” he tells Yahoo Finance. Using his cyclically adjusted price-to-earnings ratio (CAPE), he notes that the current reading of roughly 26 has been higher only three times since the late-18th century: 1929, 2000, and 2007.
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Tomorrow’s update on US personal consumption spending for May is expected to show a gain of 0.5% vs. the previous month, based on The Capital Spectator’s median econometric forecast. That’s well above the 0.1% decline reported for April.
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Sales data for new and existing houses delivered better-than-expected news this week, prompting some analysts to predict that the residential real estate market is again poised to come roaring back in the summer and beyond. But a closer look at the numbers suggests that the housing recovery is still sluggish at best. One good month for sales is encouraging, but it doesn’t change what still looks like a slow grind for the broad trend in this corner of the economy.
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Existing-Home Sales Heat Up in May, Inventory Levels Continue to Improve
National Assoc. of Realtors | June 23
Existing-home sales rose strongly in May and inventory gains continued to help moderate price growth, according to the National Association of Realtors. All four regions of the country experienced sales gains compared to a month earlier…. “Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” said Lawrence Yun, NAR’s chief economist. “Moreover, sales were helped by the improving job market and the temporary but slight decline in mortgage rates.”
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US economic growth remained “above trend” in May, according to this morning’s update of the Chicago Fed National Activity Index, a weighted average of 85 indicators. For the third consecutive month, the three-month average of the index (CFNAI-MA3) posted a reading above zero. This business cycle benchmark decreased modestly to +0.18 from a revised estimate of +0.31 for April, although the decline still leaves CFNAI-MA3 well above the neutral mark. As a result, recession risk remained low as of May.
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US economic growth for this year’s second quarter is widely expected to rebound sharply after a 1.0% decline in Q1. The upbeat estimates for this quarter include the Capital Spectator’s median econometric nowcast, which anticipates that GDP will increase 3.3% during the April-through-June period (real seasonally adjusted annual rate). That’s up from 2.8% in the previous Q2 nowcast. The Capital Spectator’s final estimate for this quarter will be published shortly ahead of the government’s initial Q2 GDP report, which will be published on July 30 by the US Bureau of Economic Analysis (BEA).
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