Existing home sales were disappointing, with a decline of 4.8 percent after the previous month’s revised gain of 1.8 percent. August’s results were well below the expected range as well. Despite this monthly decline, however, the three- and six-month trends remained positive, and sales were up 6.2 percent over the previous year. One potential reason for the decline was a shortage of supply, now at 5.2 months, which is below the 6 months of available supply consistent with a balanced market. So, the next data point, for new home sales, is the one that deserves a closer look.
New home sales came in strong, with a gain of 5.7 percent, above the July gain of 5.4 percent—and well above expectations of a gain of 1.6 percent. This is also the best monthly gain since early 2008, and it suggests that the weakness of existing home sales is not related to demand, which remains strong.
Durable goods orders came in weak, with a decline in the headline number of 2.0 percent, down from a gain of 2.0 percent in July, which was revised down to 1.9 percent. It was slightly better than expectations of a decline of 2.3 percent. Much of the decline was due to a drop in aircraft orders and defense orders. Netting out these sectors, which are extremely volatile, orders dropped 0.2 percent, in line with expectations and well down from the July figure of a 2.1-percent gain. Although this is not a particularly positive number, it does reflect a normalization of the prior month’s strong gain—also driven by defense—and is something to watch but not worry about at this point.
This week, there will be several important economic data releases to watch. This morning, the personal income and spending reports came in. Personal income showed a gain of 0.3 percent, which was slightly below expectations of 0.4 percent and down from the July result of 0.5 percent. Digging into the details, wages and salaries were up by 0.5 percent, and although proprietor income dropped by 0.1 percent, this was only a giveback of gains in the prior months of 0.8 percent and 0.7 percent in July and June, respectively.
Spending growth was stronger, at 0.4 percent, in line with expectations and up from 0.3 percent in July. Combined with upward revisions to previous months, this suggests consumers remain optimistic, which will support continued economic growth in the third quarter.
A more direct measure of consumer confidence, the Conference Board’s survey, will be released on Tuesday. Expectations are for a decline from the previously strong level of 101.5 to around 96, which will reflect the recent turmoil in stock markets. But even a decline will leave the index around long-term average levels.
On Thursday, the Institute of Supply Management will release the ISM Manufacturing Survey, which is expected to be substantially unchanged from the prior level of 51. This is a diffusion index, with numbers above 50 signaling growth. The risk here is to the downside, with weak regional manufacturing surveys and a continued strong dollar showing headwinds to this sector.
Finally, the most important report of the week will be the employment report on Friday. Job gains are expected to be around 203,000, up from the prior month of 173,000. Other metrics are expected to remain unchanged from the prior month, with the unemployment rate at 5.1 percent, growth in average hourly earnings at 0.3 percent, and average weekly hours worked at 34.6. If we do indeed get these results, it will be another strong month for employment.
On the whole, it wasn’t a great week. But after looking into the details, it’s not one to raise concerns. Although growth appears to be slowing somewhat, it remains at healthy levels.