Orders of durable goods increased 3.3% in September after a 1.0% drop in the prior month. The September gain is entirely from a 105% jump in bookings of civilian aircraft. Excluding transportation, orders of durable goods fell 0.8% in September vs. a 1.9% increase in August. In September, excluding aircraft and electrical equipment (+0.4%), orders of all other major components such as primary metals, machinery, autos, computers and electronics declined. Overall, orders of durable goods have slowed in the third quarter (see chart 1), after an impressive turnaround during the first two quarters of the year.
Shipments of durable goods slipped 0.4% during September after a 1.4% drop in the previous month. Real shipments of non-defense capital goods excluding aircraft, the input for equipment and software expenditures in the GDP report, grew at a slower pace in the third quarter (+7.3% vs. +16.3% in Q2) compared with the second quarter. Equipment and software spending rose at an annual rate of 24.8% in the second quarter. The third quarter reading of shipments of non-defense capital goods excluding aircraft suggests an increase equipment and software in the third quarter, but a smaller gain compared with the second quarter (see chart 2). The GDP report for the third quarter is scheduled for publication on October 29.
Gain in New Home Sales is Encouraging, But Inadequate to Make a Dent in Housing Market Woes
Sales of new single-family homes increased 6.6% in September to an annual rate of 307,000. In three out of the last four months, the sales tallies of new homes were at historical lows. The September reading is a marginal improvement. The 307,000 pace of home sales in September is still down 78% from the peak in July 2005 (see table below). The jump in new homes sales was propelled by the 61% increase in home sales in Midwest, while sales in the Northeast and South rose 3.5% and 3.2%, respectively. Sales of new homes fell of 9.9% in the West during September.
The current inventory of unsold homes stands at 8.0-month supply vs. 8.6-month supply in August. The historical mean of the inventory-sales ratio is a 6.2-month supply.
The housing market is inundated with foreclosed homes, which has and will continue to discourage homebuilders from undertaking new construction even in an environment of a historically low level of unsold homes (see chart 5)
The median price of a new single-family home rose 1.5% from August to 3,800, which puts the year-to-year increase at 3.3%, the seventh gain in the first nine months of the year. In the absence of foreclosed properties, home prices would have advanced at a more rapid clip.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
