LIVE MARKETS-Three dog night: Consumer confidence, Case-Shiller, advance trade/inventories

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THREE DOG NIGHT: CONSUMER CONFIDENCE, CASE-SHILLER, ADVANCE TRADE/INVENTORIES

As Warsh & Co convene for their July monetary policy meeting, three separate economic reports tell disparate tales about the U.S. economy: the trade gap is narrowing, inventories are stabilizing, home price growth is stronger than expected.

And the mood of the American consumer, whose spending accounts for about 70% of the U.S. economy, has unexpectedly deteriorated this month, according to the Conference Board (CB).

CB's consumer confidence index USCONC=ECI shed 1.4 points this month to land at 90.8, in defiance of the slight improvement economists predicted.

Digging deeper, survey participants' assessment of present conditions dropped by 3.0%. But near-term expectations were unchanged.

"Consumer appraisals of current business conditions and, to a lesser extent, perceptions of the current labor market both softened,” writes Dana Peterson, CB's chief economist.

A silver lining for data geeks: a large, prolonged gap between the present situation and expectations—as seen in the graphic below—is often a harbinger of recession. So this month's narrowing of the gulf between the two should ease fears of a near-term economic downturn:

“Perceptions of current employment conditions also declined," Peterson adds.

Indeed, CB's falling jobs confidence could be a sign that workers are in danger of being discouraged right out of the labor force.

June's employment report showed the labor market participation rate dipped to 61.5%, the lowest since March 2021, when the economy was clawing its way out of the COVID abyss. Excluding the pandemic, you'd have to go back to 1976 to find a lower participation rate.

Next, the Commerce Department released its advance take on goods trade balance USGBAL=ECI and wholesale inventories USAWIN=ECI for June.

The gap between the value of goods imported into the United States and those exported narrowed by 4.1% to $101.5 billion last month.

That's a mere $1.5 billion more than analysts expected.

In detail, exports fell by 1.8%, with industrial supplies, food/feed/beverages and capital goods falling 4.4%, 3.1% and 1.1%, respectively. This was softened by a 5.1% increase in automobile exports.

Imports, a GDP detractor, decreased by 2.6%, led by a 3.6% drop in consumer goods, with automobiles and food/feed/beverages both falling 2.5%.

Net trade has been a drag on GDP in all but two of the last 10 quarters. This week, the Commerce Department is due to take its first stab at second-quarter GDP.

"Despite a narrower trade gap in June compared to May, the merchandise trade deficit widened in Q2 from both Q1 and a year ago," notes Carl Weinberg, chief economist at High Frequency Economics. "A widening nominal trade deficit subtracts from national income growth."

Note: trendline gaps are the result of last fall's partial government shutdown.

The value of goods stacked in the warehouses of U.S. wholesalers rose by 0.3% last month, a repeat of May's upwardly revised print. The prior inventory build-up in anticipation of potential war-related supply chain bottlenecks appears to have wobbled back into some kind of equanimity.

"Big hits to GDP growth from net trade typically are partly offset, at least, by positive contributions from inventory-building, but this probably was not the case in Q2," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

Moving over to the housing market, home prices in major U.S. cities unexpectedly increased in May.

The Case-Shiller 20-city composite USSHPQ=ECI rose by 0.2% instead of the flat reading analysts expected. Year-on-year, the composite increased 1.6%, warmer than the 1.3% consensus.

Despite the upside surprise, home price growth fell in real terms—rising at a slower pace than broader inflation—for the 12th month in a row.

"Even on a nominal basis, the market remains noticeably weaker than a year ago," writes Rebecca Kaufman, associate director of commodities at S&P Dow Jones Indices. "Monthly price movements show seasonal strength masking underlying softness."

"While major metropolitan areas in the Northeast and Midwest recorded year-over-year gains exceeding the national average, many metropolitan areas in the West and Sunbelt regions remain under pressure," Kaufman adds. "This divergence may reflect shifting post-pandemic housing dynamics, including a growing return-to-office mandate that appears to be supporting traditional urban markets."

Indeed, among the cities in the composite, Chicago and New York again led the year-over-year gainers, rising 6.9% and 4.2%, respectively. On the other end of the scale, Las Vegas, Seattle and Denver were down between 1.8% and 1.9% from last year.

(Stephen Culp)

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