Federal Reserve Chair Janet Yellen told Congress on Wednesday that the central bank expects to keep raising a key interest rate at a gradual pace and also plans to start trimming its massive bond holdings this year. (July 12)
An unusually light week of economic news will reveal whether the recent slump in housing starts ended last month, providing a needed boost to the economy.
The kickoff of the second-quarter earnings season will likely draw more attention, with CNBC reporting that S&P Capital IQ expects record profits for S&P 500 companies, up 6.2% from a year ago. That could provide additional fuel for the frothy stock market.
Among companies reporting are Bank of America (earnings-per-share estimate of 43 cents, up from 41 cents a year ago); Netflix (16 cents, up from 9 cents); and Microsoft (71 cents, up from 69 cents).
In economic news, the Labor Department announces the latest reading of its import price index on Tuesday. Import prices usually don’t get much notice. But stubbornly low inflation is getting more scrutiny from Federal Reserve officials who could be convinced to forgo a third interest rate hike this year if the meager price increases continue. A weakening dollar has pushed up prices of imported goods, partly reversing previous declines due to a strong greenback.
But import prices fell 0.3% in May, partly because of sliding oil prices, says Nomura economist Lewis Alexander. Even core import prices, which strip out volatile food and energy items, were unchanged. Another sluggish reading could signal more weakness ahead for overall inflation in the U.S. Economists expect Labor to report that import prices fell another 0.2% in June.
The National Association of Home Builders’ (NAHB) sentiment index has ticked down in recent months but remains elevated. It could be an indicator of housing starts and new home sales in the months ahead. Steady job and income gains have bolstered demand for new single-family homes, Alexander says. Economists expect NAHB to announce that the measure edged up in July to a healthy 68 from 67 the prior month.
Housing starts, however, have dropped for three straight months. The main culprit has been the volatile multifamily market but single-family construction has slipped as well. Alexander figures single-family starts are poised for a comeback but multifamily could continue to slow. All told, economists estimate the Commerce Department will report Wednesday that housing starts rose 6.2% in June to a seasonally adjusted annual rate of 1.2 million.
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