Vanguard's Economic Week in Review (5/19-23)

Includes: DIA, IEF, SPY
by: Vanguard

There were signs of life in the U.S. economy last week, with leading indicators inching upward ever so slightly for the second month in a row. But this promising news was tempered as inflation edged higher, crude oil prices hit another record, and the housing market took it on the chin yet again. For the week, the S&P 500 Index fell 3.5% to 1,376 (for a year-to-date total return of –5.5%). The yield of the 10-year U.S. Treasury note fell 2-basis points to 3.83%.

Back-to-back gains for leading indicators

The Conference Board's index of leading economic indicators posted back-to-back monthly gains in March and April—the first time that's happened since the autumn of 2006. At just 0.1%, April's uptick was modest, but it beat consensus expectations of a 0.1% decline. Analysts cited an unexpected flurry of activity in the housing sector and strength in the stock market as contributing factors. Although the index remains down more than 2% over the past two years, some observers said its performance in recent months could help allay fears of an economy in free-fall.

An upward creep in the inflation rate

April brought another upward movement in a closely followed gauge of wholesale inflation, though the increase was smaller than expected. The Producer Price Index for finished goods rose 0.2%, putting it 6.5% above where it stood at the same time last year. Stability in food prices during April helped to check the advance, though many analysts expect the respite to be short-lived. "Core" inflation, after factoring out food and energy prices, was up a seasonally adjusted 0.4%, well above consensus expectations. Minutes from the April meeting of the Federal Reserve Board's Federal Open Market Committee, released this last week, showed that inflation remains a pressing concern for the nation's top bankers.

A growing glut of unsold homes

Sales of existing homes dropped in April for the second consecutive month, falling 1.0% to an annualized 4.89 million units. Although the median sales price of an existing home rose slightly—up $2,200, to $202,300—it remained 8% below the $219,900 figure posted a year earlier. The inventory of unsold homes expanded 10.5% in April, to a 23-year high of 4.55 million. Analysts noted, however, that the supply of unsold homes often surges in late spring in expectation of a busy summer sales season.

The economic week ahead

Although U.S. markets will be closed for the Memorial Day holiday on MOnday, this week will be a busy one. Awaiting economists are reports on consumer confidence, new-home sales, durable-goods orders, gross domestic product, and personal incomes, among other measures.

Note: The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read Guide to major U.S. economic reports.