The government this week will take a final look at the health of the economy in a fourth quarter that most analysts would just as soon forget. It should reveal the same or weaker growth than the previous estimate, but economists already have written off the listless performance as a byproduct of some quirky factors. Fresher data will be delivered on the nicely recovering housing market and business investment, which has been struggling but showing signs of a mild rebound.
Existing-home sales were an economic bulwark last year and started off 2016 with a modest increase due to solid job growth and pent-up demand from Millennials. But an index of pending home sales has slowed recently. And tight housing inventories should continue to constrain sales in the medium term, says Nomura economist Lewis Alexander. Economists expect the National Association of Realtors on Monday to report a 2.4% drop in existing-home sales for February to a still-decent 5.3 million seasonally adjusted annual rate.
New-home sales, by contrast, may benefit from a positive snap-back. After surging last year, sales of newly built units tumbled 9.2% in January. But recent measures of homebuilder sentiment, housing starts and permits, have been encouraging. And Alexander says builders need to ramp up construction of lower-priced homes to meet strong demand. Economists expect the Commerce Department on Wednesday to report a 1.6% rise in new-home sales to a seasonally adjusted annual rate of 502,000.
Businesses have been less eager to splurge. Orders for long-lasting goods such as computers, metal and aircraft generally have been sluggish amid a weak global economy and the energy sector’s downturn. Manufacturing activity and industrial production appeared to stabilize last month, raising hopes that the worst of the slump is over. Economists expect Commerce to announce Thursday that total durable goods orders fell 2.7% in February, largely because of a big drop in the volatile aircraft category. They estimate a closely watched measure of capital goods orders excluding aircraft and defense — a proxy for business investment — dipped 0.5% after jumping 3.9% in January, the largest gain in 19 months.
Business spending, though, was feeble in the fourth quarter, with non-residential outlays rising 0.1%. Yet the biggest drags on growth in the period were a slowdown in business stockpiling in response to weak sales and a bigger trade deficit linked to the global troubles. Last month, Commerce figured those effects weren’t as pronounced as first believed, revising up its estimate of fourth-quarter growth to 1% from 0.7%. Economists’ median forecast is that Commerce on Friday will stick with that reading. But Alexander believes they’ll reverse their last appraisal of inventories and the trade gap, revising the estimate back to a 0.7% gain.
