by Calculated Risk on 6/26/2011 06:45:00 PM

Although I expect the recovery to remain sluggish and choppy, I do think some of the recent slowdown was temporary, and I expect some pickup in U.S. economic activity in Q3. There are downside risks to this forecast, such as spillover from the European financial crisis, another surge in oil and gasoline prices (or a supply shock), and more rapid fiscal tightening in the U.S. - to name a few risks.

Even though most of the U.S. data will be weak, there might be a few hints of improvement this week, although events overseas might overshadow U.S. economic data once again.

There are several regional manufacturing surveys that will be released this week (Richmond, Dallas and Kansas City), and all will probably show weakness similar to the Philly and Empire State surveys. The Chicago PMI will probably be weak too, and the closely watched ISM manufacturing survey might show contraction (below 50) for the first time since July 2009.

Also the Personal Income and Outlays report for May (to be released Monday) will probably show the first monthly decline in real PCE since early last year. So there will be plenty of "bad news".

However auto sales should be a little better in June than in May, although the supply chain issues are still impacting sales. And falling oil and gasoline prices might lead to a little more positive consumer sentiment - and a pickup in consumer spending in June and July.

On housing, the monthly mortgage delinquency reports from LPS and Fannie Mae will probably show a lower serious delinquency rate (continuing the recent trend). And even though expectations are for the Pending Home Sales index to show a 2% decline in May, housing economist Tom Lawler expects an increase in this index (based on limited data).

And on house prices, expectations are for the Case-Shiller index (NSA) to show a 0.3% decline in April, about half the decline reported in March. However several house prices indexes showed an increase in April:

• From CoreLogic: CoreLogic® Home Price Index Shows First Month-over-Month Increase since mid-2010

• FNC reported:

Despite broad economic and job market weakness, home prices have increased for the first time since the withdrawal of the homebuyer tax credits a year ago.

Based on the latest data on non-distressed home sales (existing and new homes), FNC’s Residential Price Index™ (RPI) indicated that single-family home prices in April were up from March at a seasonally unadjusted rate of 0.5%.

• The FHFA (GSEs only): FHFA House Price Index Rises 0.8 Percent in April; First Monthly Increase Since May 2010

• And Radar Logic went further and predicted the Case-Shiller index will show an increase for April:

Last month, we predicted that the S&P/Case-Shiller 10-City composite for March 2011 would be about 152 and the 20-City composite would be roughly 138. In fact, the 10-City composite was 151.66 and the 20-City composite was 138.16.

This month, we expect the April 2011 10-City composite index to be about 153 and the 20-City index to be roughly 140.

EDITED for clarity: Seasonally April is usually slightly stronged than March, even though March is still a weak month (The NSA index will be below the SA index). However this means the NSA index would show a larger increase than the SA index. That might be a little confusing since S&P reports the NSA index, and I report the SA numbers.

It looks like the sharp house price declines are over for the summer months. I still think prices will fall further in real terms over the next couple of years (inflation adjusted), but I think we are close to the bottom nationally in nominal terms.

Overall most of the news flow will still be negative this week.

Earlier:
• Summary for Week Ending June 24th
• Unofficial Problem Bank list at 1,001 Institutions and Transition Matrix
• Schedule for Week of June 26th