Monday Update: Housing and Manufacturing Still Improving

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Aug 22, 2016 1:27:24 PM

and tagged In the News

Leave a comment

monday updateLast week’s economic data showed that business confidence and activity continue to improve. Plus, housing sentiment and activity continue to expand, while manufacturing and even mining have started to grow again. Overall, last week’s results demonstrate that the weakest part of the recovery—private business—continues to strengthen.

Housing forges ahead

Housing news continued to be positive last week. As expected, the National Association of Home Builders survey ticked up to 60 from a downwardly revised 58, as builders were encouraged by falling inventory.

Housing starts moved up by 2.1 percent, from just under 1.2 million to just over 1.2 million, beating expectations of a flat month. These numbers reflect the second-highest level since late 2007 and suggest the housing sector continues to grow.

Industry and manufacturing expanding again

Also surprising to the upside was industrial production, continuing its rebound with an increase of 0.7 percent, the biggest jump since November 2014. Beating expectations of a 0.3-percent increase, this gain was offset by a downward revision in the previous month from 0.6 percent to 0.4 percent. Much of this expansion was due to increases in utilities production, but the magnitude of the overall result was very positive.

Manufacturing also beat expectations, with growth of 0.5 percent, which was the most improvement in a year and well over expectations of 0.3 percent, suggesting that the U.S. manufacturing recovery continues to gain strength. Manufacturing has been a weakness this year, but the continued moderation of the value of the dollar suggests that we may see continued improvement.

Inflation slows on energy price drops

Inflation came in below expectations:

  • The month-on-month headline number was flat, below the previous increase of 0.2 percent and in line with expectations.
  • The year-on-year figure was down to 0.8 percent from 1.0 percent; this was below expectations for a decrease to 0.9 percent and can be attributed to further declines in energy prices, which dropped 1.6 percent for the month.

Core prices, which exclude energy and food, grew by 0.1 percent on the month (below expectations of 0.2 percent) and 2.2 percent over the previous year (below expectations of a 2.3-percent increase). These changes are small enough—and likely tied to energy—that they should not significantly affect the Fed’s decision process.

Speaking of the Fed’s decision process, the minutes from the last meeting of the Federal Open Market Committee were released last week. As expected, there were no clear hints about its likely decision on interest rates in September, but the minutes did reveal more discussion about the possibility than had been expected.

The week ahead

This week is all about housing sales and durable goods orders, which will expand our view of last week’s results.

On Tuesday, new home sales will be released, with expectations for a decline from 592,000 in June to around 575,000, due primarily to a lack of supply. With sales rising over the past three months, inventory has simply been run down.

On Wednesday, existing home sales are also expected to decline, with the June sales rate of 5.57 million—the highest level since early 2007—dropping back slightly to 5.55 million. Here again, the problem is lack of inventory, with the supply of homes available for sale at a 10-year low in June. If results come in as expected, this would indicate continued market and industry strength.

The durable goods orders report, which will be released on Thursday, is expected to be substantially better than last month’s and more in line with last week’s improved industrial and manufacturing data. Headline orders, which include the volatile transportation sector, are expected to swing from a decline of 3.9 percent to a gain of 3.5 percent on a big bounce in commercial aircraft orders. The more relevant core number, which excludes transportation, is also expected to show a swing from a decline of 0.4 percent to a gain of 0.4 percent, on the continued growth in manufacturing that we saw last week. If we do indeed get the gains expected, it would be a positive development as this has been a weak area in the economic recovery.

Finally, Janet Yellen has a speech at the Fed’s annual Jackson Hole conference that will be widely watched as an indicator of what is likely to happen with interest rates. While real news remains unlikely, this speech is her last chance to define the September meeting ahead of time, so it will be worth watching.

Have a great week!

  Subscribe to the Independent Market Observer -

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

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 into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) 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.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at 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.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®