A slew of positive reports on the housing and economic fronts helped the markets regain some confidence in the past week. Preliminary Growth Domestic Product estimates showed the U.S. economy growing at a surprisingly healthy pace while the Consumer Confidence Index posted its second straight monthly gain. Leading economic indicators, however, posted a noticeable drop in July which indicates that they may weaken in the coming months. GDP growth in the second quarter may be somewhat misleading.
The positive effects of the government’s economic stimulus package along with the weaker U.S. dollar helping to ramp up exports and decrease import activity for the quarter may have skewed economic growth to be more positive than it may be. It will also be important to keep an eye on Tropical Storm Gustav in the next few days as it works its way towards the Gulf Coast. While crude oil prices have not traded higher in anticipation for any production outages, any significant damage on oil pipelines will cause crude prices to jump higher.
Housing data in the past week turned out to be quite positive with sales of both the new and existing homes posting monthly gains. This is the first time since July of last year that both new and existing home sales posted increases in the same month. While it is far too early to say we are at the bottom of the new home market, the sales figures released this week a certainly a move in the right direction. New home sales in July rebounded off their lowest levels seen since September 1991 in June and inventory continues to fall. These combined trends will improve the supply/demand imbalance in the market.