Market Consensus before announcement
New home sales in April rebounded 3.3 percent, following a 7.3 percent drop in March and a 5.6 percent gain in February. The April annualized pace of 343,000 was still a little below the recent high of 358,000 in February but was up 9.9 percent on a year-ago basis, suggesting upward lift over a longer period. Months’ supply in April slipped to 5.1 months from 5.2 the month before. The latest number was down substantially from the recent recession high of 11.6 in October 2008. Homebuilders’ efforts to bring supply in line (by sharply reducing new construction) have paid off.

Highlights
During Q&A, Fed Chairman Ben Bernanke began by emphasizing that policy remains loose with the Fed’s balance sheet still expanded. He also said the Fed is prepared to do what is needed to help the economy…

On why not a stronger policy move today, Bernanke noted that recent economic news has been difficult to interpret. He called the extension of Operation Twist a “substantial move.”

When asked if the Fed should “stand down” and acknowledge that it has run out of ammunition, Bernanke said he would welcome help from fiscal policy but repeated that the Fed still has options to “easing financial conditions.”

On whether QE1 and QE2 had impact, the Fed chief called them “effective for providing support for the economy” and helped prevent deflation.

Regarding a question regarding a presidential candidate’s views on monetary policy, Bernanke responded that the Fed is non-partisan and will remain so.

The labor market appears to be a key issue. Bernanke indicated that the Fed is prepared to do more if the labor market does not improve. But he noted that Fed special programs have costs and benefits and moves should not be taken lightly. He noted that European leaders still have a lot of work to be done.

Regarding Europe, Bernanke said the Fed leaves leadership to Europe on their issues but consults and have implemented central bank swaps to “work together.” But the Fed is mainly in “consultation mode.”

On the issue of fiscal policy issues, Bernanke noted that financial markets do not like uncertainty and emphasized the first issue is to “do no harm”-meaning not to take actions that undermine the recovery. He noted standard long-term objectives for fiscal policy responsibility. He sees the fiscal cliff uncertainty as a major issue.

Bernanke stated that credit access is still a major issue and is slowing recovery in housing.

Other risks to the economy are the European situation and slowing global economic growth. Housing is not where it is preferred but is improving. State and local governments are having a contractionary impact overall. Bernanke sees the recovery as less robust than usual.

On the issue of the improvement needed in the labor market, Bernanke was vague, saying that it is up to the FOMC to decide whether the labor market is improving enough.

Regarding the fiscal cliff, Bernanke stated that he was not judging specific fiscal policies but that under current law, there will be reduction in fiscal stimulus next year.

On whether JP Morgan trading problems added or subtracted to crafting the Volcker Rule, Bernanke said that it has been a difficult process with five agencies involved and extensive public input.

On the balance sheet, Bernanke said the Fed is unlikely to do more maturity extensions for a while and would have to take other actions if needed. He said that nonstandard policies can still be effective.

Bernanke stated that the Fed will not be buying European foreign debt.

In summary, Fed Chairman Ben Bernanke really offered no new news. He let the FOMC forecasts speak for themselves. He did give a little emphasis to the importance for the labor market to improve-that is, unemployment needs to decline and job growth needs to improve. This has been his recent and slightly dovish stance and is not new. But he noted that it is up to the full FOMC to decide the trigger point if needed for additional monetary stimulus.

Highlights
The May and April employment reports were flat and disappointing which is the outlook for the June report as well based on month-to-date jobless claim data that are showing no improvement. Initial claims in the June 16 week came in at 387,000 which is 4,000 higher than the Econoday consensus. The prior week is revised 3,000 higher to 389,000. Convincingly underscoring the lack of improvement is the 4-week average which shows a fourth straight increase with a 3,500 gain to 386,250 (prior revised to 382,750). The June 16 week was the survey week for the monthly employment report and a comparison between it and the month-ago survey week shows a 15,000 increase. This is a reading that will depress forecasts for June employment data.

Another indication that the jobs market isn’t improving is flattening in continuing claims which until April had been on a steep downtrend. Continuing claims in data for the June 9 week are unchanged at 3.299 million with the 4-week average up 5,000 to 3.294 million. The unemployment rate for insured employees, at 2.6 percent, has been steady at a recovery low for the last four months.

The May employment report released at the beginning of this month set the tone for what has been a flat series of economic reports. Now, weekly jobless claims data are pointing to trouble for the June employment report.

Market Consensus before announcement
Initial jobless claims rose 6,000 in the June 9 week to a 386,000 level. And the prior week was revised to 380,000 which is 3,000 higher than the initial estimate. The four-week average was up three times in a row with a 3,500 gain to 382,000 in the latest week.

Highlights
Hard government data on the manufacturing sector have been mostly negative for the last several months which stands in contrast to healthy strength in many anecdotal reports specifically the national indexes from the ISM and the new entry from Markit Economics. The flash reading for June from Markit Economics, safely above 50 at 52.9, signals a continuation of meaningful monthly growth in overall activity. The pace of activity may be a bit slower compared to the year-to-date average of 54.5, but individual readings on output and on new orders show very little monthly change while employment growth, though slowing slightly, is still a big positive. One area of concern is the export side with new export orders falling nearly 3 points to 48.9, a sub-50 reading that indicates monthly contraction and offers new evidence that trouble in Europe and slowing in China are beginning to be felt over here….

Backlog orders are contracting slightly in the month, which is also a negative of course, while price pressures are easing reflecting lower oil prices but also consistent with slowing activity in general. Inventories of finished goods are steady while manufacturers do appear to bringing down inventories of raw materials.

Market Consensus before announcement
The PMI manufacturing flash index for May slipped 2.1 points to 53.9, a level over 50 to indicate monthly growth but below April to indicate a slower rate of growth. But readings were nevertheless healthy and include moderate growth for new orders, for output and for employment. The final reading for May for the overall index came in at 54.0.

Highlights
This year’s momentum in the housing sector, what of it there has been, appears to be slowing. Existing home sales fell 1.5 percent in May to a 4.55 million annual rate. The rate opened the year at 4.63 million in January but hasn’t gone anywhere. Details show monthly contraction in three of four regions including the South which is by far the largest region.

Good news in the report includes a strong firming in prices to a median $182,600 for a year-on-year gain of 7.9 percent. Supply is also a positive, rising only slightly at the current sales rate to 6.6 months and not showing the usual bloat at this time of year. Distressed properties do not appear to be having a severe effect on the market.

The unseasonably warm weather at the beginning of the year, when sales were at their highest, likely pulled sales into the winter from the spring. Weather aside, sales are flat as housing, despite record low mortgage rates, continues to struggle.

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Market Consensus before announcement
The general business conditions index of the Philadelphia Fed’s Business Outlook Survey for May dropped to minus 5.8 from plus 8.5 in April. New orders were discouraging as the index fell 3.9 points to minus 1.2, indicating mild contraction for May.