Gross Domestic Product (GDP)
The Bureau of Economic Analysis (BEA) released the second estimate of second quarter 2011 Gross Domestic Product (GDP) last week. Real GDP growth was downwardly revised to an annual rate of 1.0%, following growth of 0.4% in the first quarter of 2011. The downward revision was primarily the result of weaker inventory investment and an increase in the trade deficit. Consumption increased at a 0.4% annual rate, up from its initial estimate of 0.1%, though still considerably slower than the 2.1% rate in the first quarter of 2011. Investment in equipment and software grew 7.9% (up from 5.7%), investment in structures increased 15.7% (up from 8.2%), and the slowdown in government purchases was not as steep as initially reported. On balance, despite the lower headline number, several components of the report improved and we expect the pace of growth to pick up a bit over the remainder of the year, although we expect growth to remain generally weak.

New Home Sales
New home sales fell 0.7% in July to a seasonally adjusted annual rate of 298,000 from 300,000 in June, the third consecutive decline. Over the year sales rose 6.8%. The inventory of unsold homes fell in June to 165,000 from 166,000 in June. At the current sales rate the months’ supply is 6.6, unchanged from June. Median home prices dropped 6.3% in July to $220,000, from $236,800 in June. Over the year prices are up 4.7%. There is continued weakness in the housing sector and with the slower pace of economic growth we are unlikely to see much improvement in the housing market this year.

Durable Goods (Advance)
New orders for durable goods jumped 4.0% in July after falling 1.3% in June. The increase was driven by a big jump in motor vehicles and parts, especially aircrafts, which were up nearly 67%. Core capital goods orders excluding aircrafts fell 1.5%. Shipments rose 2.5%, the third consecutive increase while inventories rose by 0.8%. Unfilled orders increased 0.7%, building on last month’s 0.3% increase. Durable goods orders were a bit stronger than expected, but the gains were concentrated in the transportation sector. We expect the pace of business investment to remain relatively near its current level for the remainder of the year.