The Independent Market Observer

Monday Update: Home Sales and Durable Goods Continue to Improve

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Aug 29, 2016 2:36:03 PM

and tagged In the News

Leave a comment

monday updateLast week’s economic news showed that business confidence and activity are still improving. Notably, the housing market continues to show significant demand, although it’s now struggling with low inventory—a problem of success. Durable goods orders also ratified the continuing growth in the manufacturing and industrial sectors.

Overall, these results demonstrate that after a weak first half of the year, the recovery is spreading across all sectors of the economy.

A look at last week’s numbers

Last week’s data for housing sales and durable goods orders expands our view of the previous week’s results. New home sales surprised substantially to the upside, increasing by 12.4 percent to 654,000, up from a downwardly revised 582,000 in June and well above expectations for a small decline. This increase took the rate of sales to its highest level since late 2007, and the three- and six-month average rates also moved to their highest levels since 2008. All of this growth took place despite declining inventories of properties for sale and suggests that underlying demand remains strong.

Existing home sales, on the other hand, came in below expectations, with a 3.2-percent decline down to 5.39 million and below expectations of 5.51 million. This was the first decline in five months and is believed to reflect a lack of inventory, with the supply of homes available for sale down almost 6 percent over the prior year and close to a 10-year low. Despite this decline, however, other stats were positive: First-time home buyers were up to 32 percent of the market from 28 percent a year ago, and foreclosures and short sales were at the lowest level since the data started in late 2008.

As expected, the durable goods orders report came in substantially better than last month. Headline orders, which include the volatile transportation sector, swung from a decline of 4.2 percent to a gain of 4.4 percent, well above the expected 3.2-percent gain, on a big bounce in commercial aircraft orders. The more relevant core number, which excludes transportation, also did substantially better than expected, with a swing from a decline of 0.3 percent to a gain of 1.5 percent, well above the expected gain of 0.4 percent. These strong results are a positive development as this has been a weak area in the economic recovery.

Revised economic growth numbers were also released last week, with growth revised down slightly for the second quarter from 1.2 percent to 1.1 percent. This decline was in line with expectations and mostly reflected lower governmental spending. Given recent stronger data, this technical adjustment is not very concerning.

Finally, Janet Yellen gave a speech at the Fed’s annual Jackson Hole conference on Friday, which was widely watched as an indicator of what is likely to happen with interest rates. There was no real news, but Yellen did give a more positive take on the economy than expected, which on the margin suggests a rate increase this year is more likely than had been previously thought. What she did not do, however, was hint at a rate increase at the September meeting, meaning December remains the most likely date for any such increase.

The week ahead

This week will be a busy one. Personal income and spending data was released this morning. Personal income increased by 0.4 percent, well above the June increase of 0.2 percent (which was also revised up to 0.3 percent) and in line with expectations. Personal spending was 0.3 percent, in line with expectations but down from the June figure of 0.4 percent, which was also revised up to 0.5 percent. These are very strong numbers and suggest U.S. workers and consumers continue to do well. This may be confirmed by the Conference Board’s Consumer Confidence Survey, which will be released on Tuesday, with an expected small decline from 97.3 to 97.0, which would still be a healthy level.

The apparent recovery in the manufacturing and industrial sectors will be tested on Thursday with the release of the Institute of Supply Management’s Manufacturing index, which is also expected to show a small pullback, from 52.6 to 52.0. This would leave the index in expansion territory but suggests that the recovery remains modest rather than accelerating.

On Friday, the international trade balance will be released, with an expected improvement from June’s deficit of $44.5 billion to a deficit of $43.0 billion, on increases in exports and declines in imports. This should narrow the drag from trade on the economy and help overall economic growth.

Last but not least, the employment report will also be released on Friday. Job growth is expected to drop from June’s 255,000 gain to a still very healthy gain of 180,000, which would also drive down the unemployment rate from 4.9 percent to 4.8 percent. Growth in average hourly earnings is expected to drop back from a 0.3-percent gain to a 0.2-percent gain, and the average weekly hours worked are likely to remain stable at an elevated 34.5. If the jobs report comes in as expected, it will indicate the economy continues to do well, despite the weakness earlier in the year.

Have a great week!

  Subscribe to the Independent Market Observer

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®