Monday Update: Home Sales and Business Orders Strong

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Nov 28, 2016 1:01:06 PM

and tagged In the News

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monday updateOverall, last week’s data was quite positive. Existing home sales did very well, while there were signs that business investment is looking up. Although the news was not all good, most of it was.

Last week’s numbers

Existing home sales data was released on Tuesday, with a surprise increase from 5.47 million to 5.60 million. This growth was against an expected drop to 5.44 million and despite a shortage of homes for sale, which is close to a 15-year low. Still, last month had the highest level of sales since early 2007, and sales are up 5.98 percent over the prior year as momentum continues to grow.

On the other hand, new home sales, which were released on Wednesday, did somewhat worse than expected, dropping from a downwardly revised 574,000 to 563,000, against expectations of 590,000. Despite this disappointment, however, the yearly trend remains positive, with the 12-month average rising to its highest level since 2008. Inventories remain constrained, which may explain some of the weakness, and this drop could reflect just one weak month.

Also on Wednesday, the durable goods orders report shed some light on business confidence and the manufacturing outlook. The headline order number, which includes aircraft, rose from a decline of 0.3 percent to a gain of 4.8 percent, on significant gains in aircraft orders, which are extremely volatile. Core orders, which exclude transportation and are a much better indicator of real demand, also surprised substantially to the upside, from growth of 0.1 percent to 1.0 percent, against expectations of a 0.2-percent increase. These gains ratified the continued improvement in the manufacturing data from other surveys and suggest that business investment is likely to continue to improve.

Finally, also on Wednesday, the minutes for the last meeting of the Federal Open Market Committee were released. As expected, there was little in the way of new news, but it seemed clear that a December rate increase is coming.

The week ahead

This week, we’ll see a wide range of data. On Tuesday, the Conference Board will release its index of consumer confidence. Expectations are for an increase from 98.6 to 101.2, a rebound after a weak October. There is the possibility of a stronger result, as weekly surveys from other providers have continued to improve.

The personal income and spending data will be released on Wednesday. Personal income growth is expected to increase by 0.4 percent, up from an increase of 0.3 percent in the previous month, while spending growth is expected to remain the same at 0.5 percent. Both are strong numbers and would signal continued consumer-driven growth.

The ISM Manufacturing Index, released on Thursday, will provide insight into one of the weakest areas of the economy. It is expected to increase slightly, from 51.9 to 52.1, moving further into positive territory as the slow rebound continues. Exporters may finally be benefiting from faster global growth, and recent surveys suggest business conditions and confidence are improving.

Finally—and most important—the employment report will be released on Friday. Job growth is expected to increase from 161,000 to 180,000, while the unemployment rate should remain constant as more workers join the labor force. Wage growth should moderate to 0.2 percent from 0.4 percent the previous month, which would push the annual increase to a new post-crisis high. This would be another in a string of strong reports, consistent with rising confidence and spending growth.

I hope you all had a Happy Thanksgiving!

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