There were two 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) plunged by $9.3 billion (4.0 percent) in June to $219.8 billion. This was significantly worse than economists had expected, the second month-over-month decline in a row, and the largest sequential drop since August 2014. Core durable goods orders, which exclude the volatile transportation component, also fell in June (-0.5 percent) and as a result have now declined on a year-over-year basis for eighteen consecutive months, a pattern rarely seen outside of a recession. On the bright side, orders for nondefense capital goods excluding aircraft, i.e. core capital expenditures, rose by 0.2 percent last month. That was the first improvement since March but this important gauge of business spending in America has still declined by 3.7 percent over the past year. Further, shipments of core capital goods, which are used in the government's calculation of U.S. gross domestic product (GDP), fell 0.4 percent in June. That will likely cause some analysts to lower their Q2 GDP growth estimate ahead of this Friday’s release.
Elsewhere, the pending home sales index from the National Association of Realtors (NAR) lifted by 0.2 percent to 111.0 in June, a welcome improvement from May’s 3.7 percent decline but well below the 1.3 percent gain economists had expected. On a year-over-year basis, pending home sales rose 0.3 percent in June, below the 3.0 percent forecast but a needed reversal from the prior month’s 0.2 percent drop, which was also the first annual decline in roughly two years. Regionally, sales lifted in the Northeast (+3.2%) and the Midwest (+0.8%) in June but fell in the South (-0.6%) and the West (-1.3%). The strong gain in the Northeast can be attributed to the region’s relatively adequate supply of homes for sale, which has helped limit the rise in selling prices. NAR chief economist Lawrence Yun added that “Unfortunately for prospective buyers trying to take advantage of exceptionally low mortgage rates, housing inventory at the end of last month was down almost 6 percent from a year ago,1 and home prices are showing little evidence of slowing to a healthier pace that more closely mirrors wage and income growth. Until inventory conditions markedly improve, far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale.”
Sources: Econoday, Twitter, Bloomberg, ZH, Reuters, U.S Department of Commerce, NAR, FRBSLPost author: Charles Couch