Last week was a busy week for economic data showing mixed results.  Real estate was again mixed as new home sales dropped 2.40% in July and the S&P/Case-Shiller Home Price year over year rose 8.10%.  The growth in home prices is slowing its pace as it came down from 9.30% year over year ending in June.  Pending home sales of existing homes rose 3.30% in July and Mortgage Bankers Association mortgage applications increased 2.80%.  The Mortgage Bankers Association 30-year rate dropped to 4.28% from 4.29% as rates begin to catch up to the drop in US Treasury Yields.

We received a wonderful headline number for US Durable Goods Orders in July as it jumped 22.30% from June.  Following a closer read, durable goods excluding transportation decreased .80% in July as the numbers were propped up by strong aircraft sales.

The Conference Board Consumer Confidence index rose to 92.4 in August from 90.3 in July.  It would seem the consumer confidence reading would set us up for a strong personal spending number in July, however it surprised to the downside decreasing .10%.  Personal incomes rose .20% which is still very subdued and may explain a poor spending number.

The ever important Federal Reserve inflationary index, personal consumption expenditures, rose .10% in July.  Inflation seems subdued and if the geopolitical overhang was not present some would argue energy prices are higher than where they should be if not for Russia, Syria, Gaza, and Iraq conflicts.

Eyes were on the US Federal Reserve this week as officials said that tightening monetary policy may happen sooner than expected.  With respect to monetary policy over the medium run, participants generally agreed that labor market conditions and inflation had moved closer to the Committee’s longer-run objectives in recent months, and most anticipated that progress toward those goals would continue. Moreover, many participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated.

In regards to economic data for the week, inflation rose .10% in July and 2% year over year.  Inflation has stayed within Fed targets and the Fed continues to believe inflation will remain tame for the foreseeable future.  Mortgage applications went up 1.40% for the week ended August 16^th, while the 30 year mortgage rate dropped to 4.29% from 4.35%.  The hope is the reduction in mortgage rates can drive home buying and refinancing in the coming months.

The big economic release of the week was US Gross Domestic Product rebounding to 4 percent growth in the second quarter, from a revised 2.1 percent contraction during the 1^st quarter.  The increase reflected positive contributions from personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment.  Initial Jobless Claims continued the run of good data as benefits came in at 302,000 in the week ending July 26^th.  Despite the decline in initial jobless claims, the US Unemployment Rate rose to 6.2 percent in July from 6.1 percent in June.  This confirms more folks are coming back into the jobs market attempting to obtain employment, which have previously been long term unemployed or underemployed.  Personal incomes rose .39 percent in June over the prior month thus extending consumer confidence.  This is a slew of positive economic releases which is supporting a snap back in economic activity from the first quarter.

The data released over the prior week in relation to Federal Reserve policy supports low rates for an extended period of time.  Inflation, tracked by the personal consumption expenditures price index, came in at 1.6 percent year over year and .2 percent month over month.  When weighing subdued inflationary pressures with an improving jobs market, the Fed believes they can keep rates low until they confirm greater labor participation and inflation.

The big economic release of the week was US Gross Domestic Product rebounding to 4 percent growth in the second quarter, from a revised 2.1 percent contraction during the 1^st quarter.  The increase reflected positive contributions from personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment.  Initial Jobless Claims continued the run of good data as benefits came in at 302,000 in the week ending July 26^th.  Despite the decline in initial jobless claims, the US Unemployment Rate rose to 6.2 percent in July from 6.1 percent in June.  This confirms more folks are coming back into the jobs market attempting to obtain employment, which have previously been long term unemployed or underemployed.  Personal incomes rose .39 percent in June over the prior month thus extending consumer confidence.  This is a slew of positive economic releases which is supporting a snap back in economic activity from the first quarter.

The data released over the prior week in relation to Federal Reserve policy supports low rates for an extended period of time.  Inflation, tracked by the personal consumption expenditures price index, came in at 1.6 percent year over year and .2 percent month over month.  When weighing subdued inflationary pressures with an improving jobs market, the Fed believes they can keep rates low until they confirm greater labor participation and inflation.

The Consumer Price Index increased .30% in June over the prior month.  Year over year the inflation rate remained steady at 2.10%.  Two-thirds of the increase was primarily driven by the gasoline index.  Since June oil and gas prices have decreased which should lower inflation expectations and keep the Federal Reserve on the same monetary policy path.

Existing Homes Sales rose 2.60% in June from May, house prices increased 0.40%, and MBA Mortgage Applications increased 2.40% in the week ended July 19^th.  New Home Sales did not fare as well in June, dropping 8.10% from May.  Real estate has been providing mixed results and has not been the driver to growth many economists expected at this point of the economic cycle.

The job market has been producing continued strength as Initial Jobless Claims for state unemployment benefits decreased to 284,000 for the week ending July 19^th from a revised 303,000 during the previous week.  The Fed will hope this trend continues to reduce the slack in the labor market prior to hiking interest rates.

US Initial Jobless Claims for state unemployment benefits decreased to 302,000 in the week ending July 12, 2014.  This was an improvement over the previous week of 305,000 and this recent trend supports employment growth.  The New York Empire State Manufacturing index rose to 25.60 in July from 19.28 in June, while the Philadelphia Fed Manufacturing Index increased to 23.90 from 17.80.

Housing continues to lag as US Building Permits dropped to 963K in June from 1005K in May.  MBA Mortgage Applications, which includes both refinancing and home purchase demand, decreased 3.60% in the week ended July 12^th.

Oil and gas prices have been dropping over the last few weeks which should help support discretionary consumer spending.  Rates in the developed world have decreased this year making housing and borrowing more affordable.  These are normally important factors for the health and strength of the consumer.

On the plus side, economic reports on jobs were strong. Gasoline prices dropped significantly. Mortgage applications increased.

On the negative side, small and independent business optimism declined. Student loans outstanding reached an all-time high.

The Personal Consumption Expenditures index (PCE) advanced 1.8% in May from a year earlier, the Commerce Department reported.  PCE measures the prices paid by consumers for goods and services to reveal underlying inflation trends.  Excluding volatile food and energy costs, prices rose 1.5% in May.  Shelter costs such as higher rents pushed prices higher and medical costs are showing signs of a pick-up.  PCE is an important indicator as the Feds policy has been using this as an indicator for its interest rate policy.  For now the gauge remains below the Feds 2.0% threshold, but it remains an important data point worth watching.

Personal incomes increased .40% in May over the prior month and over the last 12 months the gauge has increased 3.43%.  This is a good sign as growing incomes normally translate to increased consumer confidence as you will see below, and additional consumer spending.  This is important for our economy as consumer spending makes up roughly two thirds of US Gross Domestic Product.

In other economic news new home sales increased to 504k in May, marking a big jump from Aprils 425k.  Existing home sales rose in May and is now on a two month upward trend.  Consumers remain confident as the Conference Board Consumer Confidence index read 85.2 in June, higher than the prior months reading of 82.2.

The US Inflation Rate reached 2.10% year over year following May’s increase of .40%.  The Fed continued to reduce its bond purchases by another $10 billion, which now stands at $35 billion of purchases per month. Additional economic data below:

• US Manufacturing Production increased 3.60% in May over the same month in the previous year.
• US New York Empire State Manufacturing Index increased to 19.28 in June from 19.01 in May.
• US Philadelphia Fed Manufacturing Index increased to 17.80 points in June from 15.40 in May.
• US Industrial Production increased .59% in May over the previous month.
• US Initial Jobless Claims decreased to 312,000 in the week ending June 14^th.

Last week’s economic data indicated several favorable trends: small business optimism improved, job openings increased dramatically (which indicates more companies are looking to fill positions), and real estate sales showed some strength.

On the negative side, crude oil prices rose to the highest levels since last September, retail sales remained sluggish, and consumer confidence came in below expectations.