Economic Data Continues to Surprise, Experts Say

The June jobs report will likely show the unemployment rate unchanged at 3.7% and payroll job growth throttling back to a still-decent 252,000 from 339,000 in May.

The ISM surveys will likely show service-providing industries cooled in June, while manufacturing activity contracted. Job openings likely fell in May, and construction spending grew moderately. Vehicle sales likely rose in June.

Economic data continues to surprise to the upside. First quarter real GDP growth was revised up from 1.3% in the second estimate to 2.0% in the third and final estimate. Consumer spending rose by a robust 4.2%, with both household expenditures on goods, up 6.0%, and services, up 3.2%, contributing to the increase.

Business investment rose by a modest 0.6%, while residential investment fell 4%, the shallowest decline since the first quarter of 2022. Net exports, led by a surge in goods exports, also contributed strongly to economic growth last quarter. 

The GDP deflator, the economy-wide measure of price pressures, rose by 4.1% in the first quarter. The personal consumption expenditures price index—the Fed’s preferred gauge of inflation—was revised down marginally by 0.1% to 4.1%, well above the Fed’s inflation target of 2%.

Housing data showed the sector’s resilience despite strained affordability. The Purchase-Only FHFA House Price Index rose in April for a fourth consecutive month, up 0.7%, while the S&P Case-Shiller 20-City Home Price Index increased for a third consecutive month and was up 1.7%.

Both increases were more than the consensus forecasts. Building permits—an indicator of future residential construction—rose by 5.6% in May to an annualized rate of 1.496 million units, the highest level since October 2022. Sales of new homes also surprised sharply to the upside, surging by 12.2% to an annualized rate of 763,000, notably above consensus expectations for 672,000 units. 

Existing homes typically account for roughly 90 percent of sales, but many homeowners are reluctant to move, as it would entail giving up on houses financed by much lower mortgage rates and moving to a more expensive home. Limited housing supply is spurring new residential construction, supporting new home sales, and helping house prices to stabilize. 

The Conference Board’s Consumer Confidence Index increased sharply from 102.5 in May to 109.7 in June, the highest level since January 2022; consumers were cheered to see the debt ceiling standoff dropping out of the headlines. Positive sentiment about labor markets continues to be a key driver of consumers’ upbeat assessments of current and future conditions. Consumers’ fears of a recession over the next 12 months receded in June.