Durable Goods Orders Surge, New Home Sales Substantially Exceed Estimates, Home Inventories Fall, Confidence Improves

- Durable Goods Orders for June rose .8% versus estimates of a .3% decline and an upwardly revised .1% increase in May.

- Durables Ex Transportation for June rose 2.0% versus estimates of a .2% decline and an upwardly revised .5% decline in May.

- Final Univ. of Mich. Consumer Confidence for July rose to 61.2 versus estimates of 56.4 and prior estimates of 56.6.

- New Home Sales for June were 530K versus estimates of 503K and an upwardly revised 533K in May.

BOTTOM LINE: Orders for US durable goods unexpectedly increased in June, Bloomberg reported. Excluding orders for transportation equipment, which are volatile, bookings rose 2%, the most this year. The gains reflected increasing demand for machinery defense gear, autos and metals. Bookings for non-defense capital goods ex aircraft, a gauge of future business investment, jumped 1.4% versus a .1% decline the prior month. Shipments of those items, which is a number used to compute gdp, rose .7% versus a .2% gain the prior month. Economists are now projecting 2Q GDP to grow 2.0%. Orders for autos rose 1.8%, the most since July 2007, which may have reflected the end to the American Axle strike. As I said during 1Q, I think that strike was hurting overall US economic data more than perceived and it got very little attention in the press.

Sales of new homes in the US, which usually lead overall home sales, came in solidly ahead of forecasts last month, Bloomberg reported. Moreover, the number of properties on the market plunged by the most in 45 years, indicating builders are making large strides in lower inventory. There were 426,000 homes for sale at the end of June at an annual pace, the least since December 20904. The median new home price fell 2% from a year earlier to $230,900. Housing starts have fallen 53% from a peak rate of 2.27 million at an annual rate in January 2006. I continue to believe overall home sales have bottomed around current levels and will trend modestly higher through year-end, which will greatly curtail inventories.

Confidence among US consumers unexpectedly rose in July, a sign that tax rebates and a rally in the stock market may have improved Americans’ moods, Bloomberg said. The Expectations component for the next six months rose to 53.5 versus 49.2 the prior month. The Current Conditions component, which gauges Americans’ perceptions of their current financial situation and whether it is a good time to buy big-ticket items, jumped to 73.1 from 67.6. Consumers expect inflation to average 3.2%, down from 3.4% the prior month. I expect consumer confidence to trend higher through year-end on falling food/energy prices, a rising US dollar, a stabilizing housing market, rising stock prices, decelerating inflation, an improving job market and an end to the election uncertainty.