Weekly Economic Watch - July 29, 2013‏

rose 1.9% in May, the biggest monthly increase since March 2010, easily topping consensus expectations. Adding to the good news was the one-tick upward revision to the prior month to +0.2%. In May, sales increased in nine of the 11 sub-sectors, including autos, where sales jumped another 4.3% after strong gains in the prior four months. Excluding autos, sales rose 1.2%, also much stronger than expected. In addition to gasoline (+1.4%), there was also strength in sales of clothing/accessories (+1.2%), building materials (+3.7%), general merchandise (+1.4%), sporting goods (+1.8%), furniture/home furnishings (+2.1%), food/beverage (+1.1%), and health products (+0.2%). These more than offset softer electronics (-0.8%) and miscellaneous store (-0.5%) sales. The strength in sales was entirely due to volumes because in real terms overall retail sales also rose 1.9%, the biggest monthly jump since June 2011. Nominal retail sales are up 3.6% compared to year-ago levels, with Alberta continuing to lead the provinces (+7.9% year-on-year) followed by Saskatchewan (+5.9%). Quebec sales are up 4.5% yearon- year, while Ontario and BC sales are tracking below the national average at 2.3% and 0.0% respectively.

The May Survey of Employment, Payrolls and Hours (SEPH) showed that average weekly earnings rose 0.9% during the month, causing the year-on-year gains to rise to 2.5%. With May’s gains, wage earnings are on track to grow at an annualized pace of 2.1% in Q2, an acceleration from the prior quarter’s flat print. Hours worked, however, are tracking flat, meaning that the increase in earnings came mostly from higher wages.

United States – Existing home sales fell 1.2% in June to 5.08 million units, from a downwardly revised 5.14 million units the prior month. The weaker sales were due to a slower pace in the single family unit (-1.1%) and multiple unit (-1.7%) categories. The number of months’ supply of homes in inventories at the current sales rate was up two ticks to 5.2, which remains relatively low. The median resale price reached $214,200 or 13.5% higher than year-ago levels. The share of distressed sales as a percentage of total sales continues to drop, falling to just 15% in June, a multi-year low. The home resale data was disappointing in June, although it must be said that this comes after sizable gains the prior month.

New home sales surprised to the upside by rising 8.3% in June to a seasonally adjusted annual rate of 497K units (up from a downwardly revised 459K units the prior month). That’s the largest number of new home sales since May 2008. Sales were up in all regions, except the Midwest were they fell 11.8% m/m. Buyers favoured less expensive houses in June as 65% of the purchases were for homes worth less than $300,000 compared to 57% back in April. The months’ supply of homes in inventories at current sales rates fell to 3.9, the lowest since 2004.

Durable goods orders rose by 4.2% in June, triple consensus expectations, which were at 1.4%. Adding to the good news was the upward revision of the prior month to +5.2% (from +3.6%). The jump in June orders was due to the transportation category which soared 12.8% thanks to gains from aircrafts (non-defence aircraft orders rose 31.4% on top of the prior month’s stunning 68.1% jump) and vehicles and parts (+1.3%). Ex-transportation, orders were flat after increasing during the prior two months, a bit softer than the 0.5% increase expected by consensus.

Orders of non-defence capital goods excluding aircraft rose 0.7%, a fourth increase in a row. Total durable goods shipments were flat but those of non-defence capital goods ex-aircraft fell 0.9%. After growing 5.8% in Q1, the latter, which are a proxy for business investment, contracted at an annualized pace of 1.2%. So, business investment may have subtracted from US growth in Q2.

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