The Federal Reserve’s first interest-rate hike in almost a decade is history after it finally pulled the trigger last week. Now, on to obsessing about when the central bank will raise rates again. With manufacturing still struggling amid overseas weakness, consumers and the housing market must continue to serve as economic engines if the Fed is going to lift rates at even the gradual pace it has forecast. Reports this week on home sales and consumer spending should begin to reveal whether those sectors will keep delivering.
First, however, the government will take one more glimpse in the rearview mirror, providing its final estimate of growth in the third quarter. It last reckoned that economic output increased a modest 2.1% at an annual rate in the July-September period, highlighted by healthy consumption that offset drags from the trade deficit and meager business stockpiling. Economists believe the Commerce Department on Tuesday will depict an even dimmer picture of trade as the strong dollar bolstered imports while hobbling exports. That likely prompted companies to draw down inventories even more than previously believed. As a result, economists estimate Commerce will revise down its growth estimate to 1.9%, following a 3.9% expansion in the second quarter
Existing home sales have generally been on the positive side of the economy’s ledger, increasing smartly in response to solid job and income growth. But the market cooled in October after surging the previous month. A tight housing supply is likely to continue to restrain sales until new home construction fills the void, says Lewis Alexander, chief U.S. economist of Nomura. A recent slowdown in an index of pending home sales also could foreshadow a softening market. Economists estimate the National Association of Realtors will report a 0.5% dip in existing home sales to 5.3 million at a seasonally adjusted annual rate.
New home sales have flashed more positive signs, with homebuilder sentiment, single-family housing starts and permits rising recently, Alexander notes. Economists expect Commerce on Wednesday to report a 1% rise in new home sales to 500,000 at an annual rate. Consumer spending also has been a bright spot as payroll growth, low gasoline prices and reduced household debt prompt Americans to open their wallets. A strong reading on November retail sales suggests that trend continued, though mild weather likely crimped energy spending. Economists estimate Commerce will report spending overall advanced a moderate 0.3% last month.