Vital Signs: Reports Keep the Markets on Edge

For the past couple of weeks, financial markets have been whipsawed by economic data. Just when some economic reports, especially those on housing activity, are starting to show signs that the economy may be cooling down the way the Federal Reserve would like, the recent inflation data are heating up. Don't expect any relief in the coming week.

The markets are increasingly sensitive right now because the unsettled nature of the data is raising new uncertainties about the Fed's next move on interest rates. The numbers put policymakers in a real bind. Do they dare to stop hiking rates with inflation picking up? Or do they continue to lift rates above the current 5% target and damage an already slowing economy? No wonder the markets are on edge.

The coming week brings a fresh update on housing activity, a key player in the economy's slowdown scenario. April sales of both new homes, due on Wednesday, and existing homes, coming on Thursday, are expected to show further declines from last year's peaks. There's also the weekly reading on mortgage applications in May, which are an important foreshadowing indicator of future sales reports. Sales activity tends to presage movements in housing starts. The May reading of builders' assessments of housing market conditions fell to the lowest level in a decade.

Investors will also be watching for new data on April durable goods orders on Wednesday, a revision to first-quarter GDP on Thursday, and April personal income and spending on Friday. Also on Friday, look for a final reading on May consumer sentiment.

The GDP revision and the April personal spending reports will be of particular interest. Economists expect a sizable upward revision to the original GDP growth rate of 4.8%. Some think the new number could be close to 6%. April consumer spending data will be a crucial benchmark for how spending in the second quarter is shaping up. And investors will have an especially sharp eye on the April price index for personal consumption expenditures. The core PCE price index, which excludes energy and food, is the Fed's favored measure of inflation.

Here's the roster of upcoming events.

  Economic Releases
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