Durables Rebound, New Home Sales Remain Strong and Crude Inventories Fall

- Durable Goods Orders for April rose 1.9% versus estimates of a 1.3% rise and an upwardly revised 1.6% decline in March.
- Durables Ex Transportation for April fell .2% versus estimates of a 1.0% rise and an upwardly revised .2% gain in March.
- New Home Sales for April rose to 1316K versus estimates of 1325K and a downwardly revised 1313K in March.
- Summary of Weekly Petroleum Data for the Week Ending May 20, 2005.
- The EIA reported crude inventories fell 1.69M barrels versus estimates of a 1.5M barrel build. Distillate fuel inventories rose 1.9M barrels versus estimates of a 538K build. Gasoline inventories rose 609K versus estimates of a 600K rise.

BOTTOM LINE: The rise in bookings for items made to last at least three years was the biggest since November and spurred by demand for machinery, computers and aircraft. With consumers still spending and interest rates low, businesses are likely to keep replacing trucks, machinery and computers to meet demand. Orders for transportation equipment rose 8.2% after declining 6.5% in March. Bookings for vehicles increased 3.4% and aircraft orders surged 28% after slumping 22% the previous month. Machinery orders increased 2.2% last month after declining 4.9% in March. Orders for computers rose 16% last month after falling 5.3%. Orders for defense hardware fell 15% last month, following an 8.3% increase. Excluding defense, orders excluding transportation in April rose 2.3%, the most since November 2004. Finally, bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, gained 1.6% last month, the most since January.

US new home sales increased in April to a record pace as historically low interest rates and job gains spurred sales. New home sales so far this year have averaged a 1.27M rate versus last year’s record 1.2M. Job growth, rising incomes and mortgage rates near a four-decade low will continue fueling home sales and thus construction will continue adding to economic growth. Sales rose in two of the four regions in April. Sales surged 37.2% in the Northeast and rose 2.8% in the West. Sales fell 5.3% in the South and declined .5% in the Midwest. The median price rose to $230,800, a 3.8% rise from the same month last year. I continue to believe there is not a housing bubble in most parts of the country. Yes prices are elevated in many parts of the country and there are some bubbles, but a median gain of 3.8% over the last year hardly characterizes a nation-wide bubble.

Crude inventories are still near six-year highs and 5% above the average level over the last 5 years. I continue to expect an accelerated decline in oil prices during the second half of the year as global demand decelerates, the US dollar stays firmer and OPEC pumps near 30-year high levels.