It looks like we dodged the first two economic news bullets of the week. The Employment Cost Index for the second quarter came in no higher than it was last quarter, and new home sales for June dropped sharply. This calmed the bond market for the time being. At the end of the day the 30-Year T-bond was up by 18/32. The DJIA went along for the ride, gaining more than 47 points.

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On a seasonally adjusted basis, the Employment Cost Index (ECI) rose by 0.8 percent during the three-month period ending in June. This was the same as the change for the first quarter. For the past 12 months the ECI rose a total of 2.9 percent, with wages and salaries growing by 3.2 percent and benefit costs increasing by 1.8 percent. Over the past 2 years, the quarterly, 12-month change readings for the ECI have varied between 2.8 and 3.0.

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The Commerce Department's Bureau of the Census announced today that sales of new one-family houses in June declined on an annualized basis by 5 (+/-9) percent from May. Today's report also revised the reported May gain of 7.5 percent down to 1.2 percent.

Last month, in order to find something meaningful in the new home sales data, we looked at the year-to-date figures. We'll do that again this month. As you can see in the preceding paragraph, the month-to-month changes in home sales usually have rather large relative standard errors. On the other hand, the typical relative standard error for year-to-date data is just +/-2 percent. For the first six months of 1996, new home sales were 403,000 compared with 339,000 for the first six months of 1995. That's a gain of 18.9 percent. Now, when we do the year-to-date comparison for last month (after correcting last month's data for the new revision) we get a year-over-year gain of 22.9 percent. So, from May to June, the year-to-date change in new home sales was less than it was from April to May.

Yesterday I said that the building permits report was coming out today. That was a slip up. The permits data is published as part of the housing starts report, not the sales report.

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In a final story, the Conference Board announced today that the July reading for its Consumer Confidence Index leaped to 107.2 from a June reading of 100.1. This was the highest reading for this index since May 1990. I don't know what the survey respondents were so all-fired confident about. According to the other two reports that came out today, their incomes were not rising any faster in the second quarter than they were in the preceding two years and, in June, fewer of them could afford to purchase a home. The Board's survey is conducted on a different sample of 5000 households every month. It looks like this month's selectees were a particularly optimistic group.

Each month I average the Conference Board Index with the University of Michigan's Consumer Sentiment Index to form a composite indicator that I call Merlin's Monthly Magical Mysterious Michigan/Conference Composite Consumer Confidence Index. This month that index stands at 100.1, the highest reading since I started calculating it a little less than a year ago. This compares with a low reading of 88.9 set back in January.

Byline: Lafferty (MF Merlin)