Wednesday, March 26, 2008

Durable Goods Orders Fall, New Home Sales Exceed Estimates

- Durable Goods Orders for February fell 1.7% versus estimates of a .7% rise and an upwardly revised 4.7% decline in January.

- Durables Ex Transports for February fell 2.6% versus estimates of a .3% decline and an upwardly revised 1.0% decline in January.

- New Home Sales for February were 590K versus estimates of 578K and an upwardly revised 601K in January.

BOTTOM LINE: Orders for US durable goods unexpectedly fell in February, Bloomberg said. Bookings for non-defense capital goods excluding aircraft, a gauge of future business spending, fell 2.6%, the most since October. Shipments of these items, used in computing GDP, fell 2.1%, the most since January 2007. Bookings for military equipment fell 10%. Orders for computers, communications equipment and electrical equipment all rose in February. I had expected GDP growth to average about 1% during the first half of the year. However, recent data suggest GDP will likely be flat during the first half, before accelerating meaningfully during the second half of the year. I expect Durable Goods Orders to bounce back sharply next month.

Sales of new homes in the US fell less than economists had forecast, Bloomberg reported. The median price declined 2.7% from a year earlier to $244,100. Sales in the Northeast fell, while sales in the South and West rose. The number of new homes for sale at the end of February fell to 471,000, the lowest since July 2005. At the current sales pace, the supply of new homes remained at 9.8 months worth. Mortgage Applications surged 48.1% as refis soared 82% and purchase applications jumped 10.6%. According to, the average 30-year fixed rate mortgage has declined 36 basis points over the last two weeks to 5.72%. I continue to expect home sales to surprise on the upside this spring on pent-up demand, lower prices and lower mortgage rates.

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