Monthly Archives: October 2011

September Durable Goods Orders

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NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: September Durable Goods Orders
KEY DATA: Orders: -0.8%; Excluding Aircraft: +2.0%; Backlogs: +0.8%

IN A NUTSHELL: “Businesses continue to invest at a robust pace and that bodes well for not just current but future growth as well.”

WHAT IT MEANS: Can we finally put to bed the notion that the economy is teetering on the brink of a double-dip recession? Durable goods order fell in September but only because the hugely volatile aircraft sector tanked. Excluding both domestic and defense aircraft orders, where increases or decreases don’t do much to near term activity, demand for big-ticket items soared. Strong gains were reported in computers, metals, machinery and electrical equipment. The closely watched measure of business capital spending, non-defense/non-aircraft capital goods orders, jumped sharply. There were some declines in communications equipment and vehicles but with vehicle sales firming, that is likely to reverse in the future. Looking outward, the rising orders are causing backlogs to build dramatically and that implies industrial production and most likely hiring will be solid in the months to come.

MARKETS AND FED POLICY IMPLICATIONS: This was a robust report that continues the long line of data that indicates the economy did pretty well during the summer. It is hard to believe that businesses would invest heavily if they are not seeing the demand needed to support those expenditures. We get GDP tomorrow and I think it could surprise by coming in over 3%. Whether that calms nerves about the economy is a different story, since job gains continue to lag. Until payrolls rise more rapidly and the unemployment rate falls, the perception will be that the economy is in the dumps. Clearly, it is not. As for investors, it still seems to be about Europe and for fairly good reason. While most economists agree that the alternative to a decisive solution of the sovereign debt issue is chaos, that doesn’t mean the politicians believe that to be the case. So every time things look bright, the markets soar but when a solution gets pushed down the road, investors panic. Until a defensible policy is agree upon, look for market volatility to continue even if it appears that the U.S. economy is healing.
Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. Re/Max Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

September Existing Home Sales

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NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: September Existing Home Sales
KEY DATA: Sales: -3.0%; 1-Family: -3.6%; Condos: +1.8%

IN A NUTSHELL: “The housing market just cannot get any traction despite record low mortgage rates.”

WHAT IT MEANS: I was nice to see that housing starts improved but for the market to really be solid, the existing home segment must improve. This is where most of the action takes place and right now it is largely treading water. Existing home sales eased back in September, according to the National Association of Realtors. A rise in condo and co-op purchases couldn’t offset a decline in single-family sales. The only region where demand improved was the Northeast. Contract failures, which are usually due to an inability to secure a mortgage, remained high. As long as distressed homes affect appraisals and credit standards remain tight, sales are not going to gain much traction. Housing prices were down over the years despite a decline in the share of homes sold that were distressed.

MARKETS AND FED POLICY IMPLICATIONS: There are so many hurdles facing the housing market that it is hard to see when conditions will return to “normal”. In addition to appraisal and credit issues, lots of households don’t even have the equity to make a move. With job growth weak, mobility is limited and that too slows the market. Still, the mortgage rate is so low and affordability so high that you would think conditions should be improving a little. It just doesn’t look that way as the September sales pace is pretty much what we have seen all year. Sometimes it has been higher, other times lower but it seems that roughly a 5.0 million unit annualized sales pace is where demand seems to wander around. In September, the pace was 4.91 million. So once again it needs to be pointed out that the economy will have to make do without housing pushing things upward. That means the slow, steady, grinding recovery is likely to stay that way for quite a while.
Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. Re/Max Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

September Retail Sales

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NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: September Retail Sales
KEY DATA: Sales: +1.1%; Excluding Vehicles: +0.6%

IN A NUTSHELL: “Recession, how can you say we are in recession when consumers keep spending?”

WHAT IT MEANS: We all know that consumers have stopped buying, right? Wrong. At least if you believe the Census Bureau. Retail sales soared in September helped along by a rebound in vehicle demand. But it wasn’t just vehicles as only supermarkets, garden supplies and sporting goods stores posted declines. There were large increases in sales of gasoline, despite a drop in prices, clothing, furniture, general merchandise and at restaurants. It was interesting that people ate out a lot more since this is a sector that tends to mirror optimism. Maybe people are not as distressed as the surveys seem to indicate. During the third quarter, retail sales rose at a robust 4.5% annualized pace and even adjusting for inflation, it looks like consumer demand was up solidly.

MARKETS AND FED POLICY IMPLICATIONS: This was a strong report in a line of releases that seem to refute the notion that a double dip is here or inevitable. The economy is not in great shape but it is hardly falling apart, a theme I have been harping on for quite some time. Unfortunately, we are in a slow, steady, grinding recovery that is not creating lots of jobs and that intense focus on employment is hiding the process. Yes, it would be nice to flip a switch and have economic and job growth start to soar but with housing, finance and fiscal policy acting as restraints, that is not realistic. In the face of those uncertainties, though, consumers are persevering and third quarter consumption should be strong enough that growth in excess of 3% is likely. Indeed, a solid increase in services spending, which is not part of the retail sales report, could send the number closer to 4%. Though not sustainable, that level of growth would put pressure on businesses to start hiring again. We had started switching gears early this year but the high price of gasoline cut the legs from under the recovery. Gasoline prices are down and should come down a lot more. That will add to spendable income and keep the upturn going. Investors are likely to eat up this report since it is a lot higher than expected. For a little while at least, the focus will be back on the U.S. economy rather than European sovereign debt.
Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. Re/Max Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

September Employment Situation

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NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: September Employment Situation
KEY DATA: Payrolls: 103,000; Private Sector: 137,000; Government: -34,000; Unemployment Rate: 9.1% (unchanged)

IN A NUTSHELL: “Better than expected is nice but we need employment gains to grow a lot faster if the unemployment rate is to come down.”

WHAT IT MEANS: Well, the sky is not falling just yet. Businesses continue to add workers and it is hard to see how we could be in recession if payrolls are growing. Still, the job gains in September were not great. The private sector’s increase was bloated by a return of about 45,000 striking communications workers. They were considered off the rolls in August. A strong gain was posted in the construction sector as nonresidential activity picked up solidly. Let’s wait to see if this is a trend. Retail, telecommunications, health care and professional services all were up. On the other hand, manufacturers became more conservative and cut their workforces a touch. The uncertainty about the world economy seems to be trumping solid order growth. Finance, transportation and wholesaling were also off. But the big negative was government workers, especially local education. Meanwhile, state governments added workers. And I thought it was the state governments that were having fiscal problems. The number of people finding positions was not enough to lower the unemployment rate, which remained at a way too high 9.1%. A rise in the labor force, which I have noted in the past is a sign of growing confidence, offset a rise in employment. The trend in job growth may be changing. Both the July and August numbers were revised upward, by a total of almost 100,000, and that may indicate there is some acceleration in hiring going on. Also, hours worked and wages rose so income gains have improved.

MARKETS AND FED POLICY IMPLICATIONS: It’s incredible how low our sights have been set. The idea that 103,000 workers being added in one month is good and should buoy investors is depressing. We need to be seeing job gains in the 200,000 range. But to get there the public sector has play its part, or at least stop getting so much in the way. In past recoveries, we might have had 25,000 jobs added, a swing of about 60,000 in the September total. In addition, home construction, a huge driver of job gains, needs to improve. With construction weak and government negative, the chances of getting back to strong payroll growth in the near future are not great. I see that happening, but closer to next spring when government layoffs should ease and construction may be somewhat better. Still, the markets should like this number, if investors can see past Greece and the downgrades of European banks. This is not a report that will tell the Fed that Operation Twist (the Fed calls it a “maturity extension program”) is unnecessary. Indeed, it only reinforces the view that with government cutting back, monetary policy is the only tool left to bolster growth.
Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. Re/Max Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com