Durable Goods Orders Meet Estimates, New Home Sales Fall Slightly

- Durable Goods Orders for May were unch. versus estimates of unch. and a downwardly revised 1.0% decline in April.

- Durables Ex Transports for May fell .9% versus estimates of a 1.0% decline and a downwardly revised 1.9% gain in April.

- New Home Sales for May fell to 512K versus estimates of 512K and 525K in April.

BOTTOM LINE: Orders for US durable goods were unchanged in May as companies trimmed investment plans, Bloomberg reported. Metals, machinery and automobiles were among the goods that saw a drop in demand last month. Those declines were offset by increases in computers, appliances, commercial aircraft and defense equipment. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, fell .8%. However, shipments of those goods, a number used to calculate GDP, rose .6% following a .9% gain in April that was larger than prior estimates.

Sales of new US homes fell 2.5% in May, Bloomberg reported. The median sales price last month fell 5.7% from May 2007 to $231,000. The supply of homes at the current sales rate rose to 10.9 months’ worth from 10.7 months in April. The number of houses completed and waiting to be sold fell to 182,000. New home purchases rose 5.1% in the Midwest and .4% in the South. Sales fell 12% in the West and 7.9% in the Northeast. “It feels to us as though we’re pretty much on the bottom, but that doesn’t make you feel too good,” Robert Toll, CEO of Toll Brothers, said. “We have noticed some good times coming back in some markets, but in other markets, there’s no sign of recovery,” he said. The 10-year yield is surging 9 basis points and the US Dollar Index is rising .1% on today’s reports. I still expect the Fed to leave rates unch. at today’s meeting and to use more hawkish language in the ensuing policy statement. The stock market’s initial reaction will likely be modestly negative, before resuming today’s rally before week’s end. Fed fund futures currently imply a 59% chance of a 25 basis point rate hike by the September meeting and a 29% chance for a 50 basis point hike by then. I continue to believe home sales have bottomed and will trend modestly higher from current levels over the intermediate-term.