There were a few reports on the U.S. economy worth mentioning 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) surged in October by $11.0 billion (4.8 percent) to $239.4 billion. That was much better than the 1.5 percent gain economists had expected and the largest month-over-month increase in a year. The sharp move higher, though, was due largely to a (one-time) 94.1 percent spike in non-military aircraft orders, which is why "core" durable goods orders that exclude the volatile transportation component rose by just 1.0 percent in October. However, that was still a healthy monthly gain for core durable goods and it was enough to pull the annual pace of growth up to 0.3 percent, the first positive reading since December 2014. Elsewhere in the report, orders for nondefense capital goods excluding aircraft, i.e. core capital expenditures, an important proxy for U.S. business investment, lifted by 0.4 percent in October, and shipments of those goods rose by just 0.2 percent. The latter was down from September but likely related to businesses cutting back on spending ahead of the Presidential election. Next month’s report will therefore be more telling about the post-election outlook for U.S. manufacturing. Moreover, the flash reading on the purchasing managers' manufacturing index (PMI) from IHS Markit signaled a sharp rebound in activity this month, with the group’s chief economist Chris Williamson adding that “U.S. manufacturers enjoyed a strong post-election bounce in November, further tilting the scales toward the Fed hiking rates in December. Many factories reported that demand from customers had picked up as uncertainty about the election result cleared. Domestic demand rose especially sharply, helping to make up for subdued export growth, linked in turn to the strong dollar.”
Next, a report from the Census Bureau showed that sales of new single-family homes in America fell by 1.9 percent in October to a seasonally adjusted annual rate of 563K units. The September figure was also revised lower but sales have still grown by 17.8 percent over the past twelve months. Regionally, home sales fell everywhere last month except in the West. The median sales price of new houses sold in October slid to $304,500, helped by an uptick in the inventory of new single-family homes. Moreover, months’ supply rose to 5.2 at the current sales pace. New home sales are extremely volatile and account for a relatively small portion of the overall U.S. housing market. However, this metric is still worth keeping track of because historically new home sales tend to head sharply lower ahead of a recession, something which has yet to happen during the current cycle.
Elsewhere, the consumer sentiment index from the University of Michigan ended November at 93.8, the best reading since May and much better than economists had anticipated. Under the hood, Americans’ views of both current and future economic conditions improve markedly this month, with the latter jumping to an 18-month high. The gains this month were broad as well, with stronger confidence reported across all incomes, ages, and regions. In fact, more consumers reported that they expect their finances to improve during the next twelve months than in any other survey during the past decade. All of this suggests a generally favorable initial reaction to the results of the election but Richard Curtin, director of the Michigan Survey of Consumers, stressed that “No surge in economic expectations can long be sustained without actual improvements in economic conditions. Presidential honeymoons represent a period in which the promise of gains holds sway over actual economic conditions. Presidential honeymoons, however, can quickly end if they are unaccompanied by prospects that economic conditions will actually improve in the future. President-elect Trump appears to appreciate the importance of his first hundred days; the key issue is whether his economic policies will resonate with the nation's consumers.”
Sources: Econoday, Bloomberg, Twitter, ZH, U.S. Census Bureau, IHS Markit, UoM, FRBSLPost author: Charles Couch