Economic Notes 8-27-12


Written by: Jon McGraw

Economic Notes:

Existing home sales were up +2.3% in July to an annualized 4.47 million units, which was a little lower than the expected +3.2% increase. Increases were seen in both single-family homes and condos. The trend continues to move higher (nearly +10% this year), which is the best in about six years. Additionally, the number of homes on the market is falling.

New home sales rose broadly in July by +3.6%, but fell short of expectations of over 4%. At the same, however, June sales were revised upward, which offsets some of that negative news. The Northeastern U.S. was the biggest contributor to the index, as other regions were little changed.

In housing, we’re not out of the woods yet, but we have certainly seen some improving housing conditions as of late. Why does this matter? A good portion of the economy, especially during recoveries (normally) has been driven by the housing sector, whether it’s construction jobs, home improvement or more indirect impacts such as furniture or other home furnishings. There are also a significant number of jobs tied to these areas which we could use.

Durable goods orders were up +4.2% for July, which was much better than the forecast figure of +2.5%. Market took this as a positive, even though the bulk of the increase (+14.1%) was from transportation equipment; the other orders disappointed somewhat, including non-defense capital goods orders. Nonetheless, it’s an increase and these anomalies are part of the data game.

Initial jobless claims were a bit higher than expected at 372k vs. a forecast 365k. The four-week average also rose by 4k, but continue to be low relative to earlier summer numbers. Continuing claims came in a 3,317k for the Aug. 11 week, versus an expected 3,300k, so slightly off.

The FOMC minutes from the July 31-August 1 meeting contained few surprises, as the summary contained references to a slowing in consumer spending and continued struggles with employment. The committee stands ready to act further in terms of easing if conditions continue down this slow path. At the same time, members realize the possible futility in continued easing using these same methods. Since conditions have improved over the past few weeks, we may see language pointing to an extension of the low rate period beyond late 2014 and/or extensions of existing buy-back programs. The critical thing will be market’s reactions to Fed action/inaction as we move into a more seasonally volatile time of year. The Federal Reserve’s annual retreat in Jackson Hole, Wyoming begins at the end of this week and, with participants including important global economic policymakers, we may learn more from comments made here.