Businessweek.com compiles comments from Wall Street economists and strategists on the key economic and market topics of July 1.
Michael Feroli, JPMorgan Chase
Incoming data have led us to lower our tracking of second-quarter GDP from 4.0 percent to 3.2 percent. In addition, the ongoing tightening in financial conditions is leading us to mark down our projection for third -quarter GDP from 4.0 percent to 3.0 percent. Since the intensification of the European crisis in late April, the risks to U.S. economic growth have been tilting to the downside. The latest round of data confirm that the sovereign crisis transmission channels have been operative and weighing on the economy: Export orders tanked, confidence has stumbled, and the hit to households' equity wealth is becoming a considerable impediment to consumer spending.
So far, the more extreme outcomes in Europe have been avoided, and we continue to look for modestly above-trend growth, consistent with the message from this morning's [Institute for Supply Management manufacturing] report.
John Silvia, Wells Fargo Securities
In June the ISM index further moderated its positive momentum to 56.2 from 59.7 in May and the peak at 60.4 in April. The ISM index takes into account measures of sentiment on orders, production, supplier deliveries, inventories, and employment. In June, compared with May, we saw declines in the new orders, production, supplier deliveries, and employment components of the index.
Moderation in the ISM index is consistent with our expectation for slower industrial production in the second half of this year. In the first half of 2010, we estimate industrial production rose 6 percent and now expect a gain of just 2.4 percent in the second half.
David Resler, Nomura Securities
U.S. construction spending declined 0.2 percent month-over-month in May, slightly less than expected. However, the details of the report were disappointing. Most importantly, private nonresidential construction spending declined 0.6 percent, reversing an 0.8 percent gain the previous month. We had hoped that the rise in nonresidential construction signaled a turn in fortunes for the commercial real estate sector, but that proved premature.
Private residential construction also declined 0.4 percent in May, following a large increase in April. Based on recent housing starts reports, residential building will likely remain weak for a time.
Theresa Chen, Barclays Capital
Pending home sales fell 30.0 percent in May, following a 6.0 percent rise in April, far below our (-15.0 percent) and consensus (-14.2 percent) estimates. After three months of healthy gains from the boost by the first-time home buyer tax credit, today's release brings the index level to 77.6, the lowest in the history of the series since its inception in 2001. Geographically, all regions experienced significant declines; the West witnessed the mildest decrease, of 20.9 percent.
While the impact of the expiration of the first-time home buyer tax credit was felt in May for pending home sales, existing home sales, which measures closed contracts, should remain elevated through June. The underlying trend in home sales will be apparent only after the distortionary effects of the stimulus fade.
Beth Ann Bovino, Standard & Poor's
Initial [jobless] claims rose 13,000, to 472,000, in the week ended June 25, worse than the 460,000 expected by markets. Continuing claims jumped 43,000, to 4.616 million, in the week ended June 19, after the prior week was upwardly revised to 4.573 million (previously 4.548 million). The adjusted insured unemployment rate was 3.6 percent, the same as the prior week's upwardly revised 3.6 percent reading (previously 3.5 percent). The number of people receiving emergency unemployment compensation plunged 217,513, to 4.5 million, with most reportedly reflecting the job bill's lapse.
The larger-than-expected increase in claims will likely add to market concerns about Friday's job report, [as investors were] already spooked by [the June] ADP private payroll report.