There were a few important reports on the U.S. economy released this morning. First, data from the Census Bureau showed that new orders for U.S.-manufactured durable goods (items meant to last at least three years) fell in September by $0.3 billion (0.1 percent) to $227.3 billion. That was much worse than the 0.2 percent gain economists had expected but on the bright side the August print was revised higher. Core durable goods orders, which exclude the volatile transportation component, rose in September (+0.2 percent) but the annual rate of growth remained negative for the 21st month in a row, a pattern rarely seen outside of a recession. Worse still, orders for nondefense capital goods excluding aircraft, i.e. core capital expenditures, an important proxy for U.S. business investment, fell by 1.2 percent in September, the first monthly decline since May and nearly enough to erase all of August’s gain. Moreover, shipments of core capital goods, which are used in calculating gross domestic product (GDP), fell an annualized rate of 4.4 percent in the third quarter.
Next, the pending home sales index from the National Association of Realtors (NAR) rose by 1.5 percent to 110.0 in September. That was better than the 1.0 percent increase economists had anticipated and enough to lift the year-over-year gain to 2.4 percent. Regionally, sales fell in the Northeast (-1.6 percent) and the Midwest (-0.2 percent) but rose in the West (+4.7 percent) and the South (+1.9 percent). There is a seasonal pattern where sales typically fade after the summer uptick but NAR chief economist Lawrence Yun added that “One major predicament in the housing market is without a doubt the painfully low levels of housing inventory in much of the country. It's leading to home prices outpacing wages, properties selling a lot quicker than a year ago and the home search for many prospective buyers being highly competitive and drawn out because of a shortage of listings at affordable prices.”
Elsewhere, the Federal Reserve Bank of Kansas City’s composite manufacturing index was unchanged in October at +6.0, the second positive (expansionary) print in a row and one of the highest readings the past few years. Under the hood, measures of production, shipments, new orders, and employment all improved this month, with the latter climbing to the best level in almost two years. The gauge of capital expenditures deteriorated in October but most forward-looking factory metrics strengthened. Comments from surveyed managers in the 10th Fed district were somewhat mixed:
- “Another large health insurance increase and a large increase in local taxes will force us to raise prices, but material and wage costs have been stable. Excess capacity in our industry caps how much we can increase our prices.”
- “There have been stronger bookings and shipments than budgeted. A great surprise and it continues into October.”
- “Unemployment numbers in our area are very low. We have a need to hire 10-15 people but can't find stable associates that are interested in working.”
- “Fourth quarter is shaping up nicely. It is always the best quarter of the year for us. Skilled labor is still a challenge for us.”
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. FHFA, The Conference Board, FRBR, FRBSLPost author: Charles Couch