September Durable Goods Orders

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

June Existing Home Sales

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

INDICATOR: June Existing Home Sales
KEY DATA: Sales: -0.8%; 1- Family: 0 %; Condos: -7%; Median Prices (6 ’10-6 ‘11): +0.8%

IN A NUTSHELL: “It’s tough to turn around the housing market when equity has disappeared and mortgages are hard to get and we keep seeing that fact month after month.”

WHAT IT MEANS: Disappointing is the simplest way to put it. After housing starts popped, it was hoped that maybe there was some new life in the residential real estate market. At least when it comes to existing homes, that doesn’t seem to be the case. The National Association of Realtors reported that demand eased a touch in June led by a sharp drop in condo sales. Geographically, modest increases in the South and Midwest were offset by a sharper decline in the Northeast and a smaller drop in the West. The report pointed to a surge in contract cancellations as an explanation for the overall decline. Why that was the case is a good question. The logical reason is tight credit but by now you would think potential buyers and realtors would do some pre-approval action to find out buyer capacity. So I cannot give you a good reason for what hopefully is only a temporary phenomenon. There was some good news in the report as median prices rose from last June with the West and the Northeast up solidly. Both condos and single-family home costs managed gains.

MARKETS AND FED POLICY IMPLICATIONS: The housing market just cannot get much traction, at least the existing home market. We get new home sales next week and that is the segment of the market on which I am focusing. The reason is simple: Building more homes is where more of the jobs are created. Clearly, you cannot delink the two part of the market especially now. The large number of distressed existing homes is depressing the new house market. For builders the rise in existing home prices is a start. Clearly, prices need to increase a whole lot more but we may finally have found the bottom in prices and that points to more healing of the housing sector in the months to come. Investors are watching Washington and earnings so this report may be a tree in the forest. The debt ceiling charade may finally be coming to an end. Republicans got to vote on their spending cuts and Democrats will vote on their tax expenditure cuts. Now that the deadline is two weeks away, a compromise will have to be agreed upon. The alternative is simply unthinkable.
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