ECRI Weekly Leading Index 135.80 +1.12%Existing Homes Sales for August rose to 7.29M versus estimates of 7.12M and 7.15M in July. US sales of previously owned homes unexpectedly surged to the second-highest level on record and prices reached an all-time high in August, spurred by job growth and interest rates within a percentage point of historic lows, Bloomberg reported. The median price rose 15.8% to a record $220,000. Sales rose 5.6% in the West, 1.9% in the Midwest and 1.7% in the Northeast. Sales fell .4% in the South. The supply of homes available for sale, another gauge of housing demand, increased to 4.7 months’ worth in August versus 4.6 months’ worth in July. “These are tremendous numbers,” said Kevin Harries, chief economist at Informa Global Markets. “There is nothing in the latest round of existing home sales data to show that we’re slowing down.”
New Home Sales for August fell to 1237K versus estimates of 1350K and 1373K in July. US new home sales last month fell by the most since November, Bloomberg reported. However, the average price of a new home rose last month to $220,300 from $215,000 the prior month. Today’s report still puts new home sales for the year on pace to beat last year’s all-time record. The supply of new homes for sale at the current pace rose to 4.7 months from 4.1 months in July. New Home Sales in August declined 2.2% in the South, 18% in the West, 11% in the Midwest and 22% in the Northeast. “Construction activity has been very strong, and that’s creating supply in excess of strong demand, which suggests we’ll see slower growth in prices,” said Richard DeKaser, chief economist at National City
Consumer Confidence for September fell to 86.6 versus estimates of 95.0 and a reading of 105.5 in August. Consumer confidence in the US dropped by the most in 15 years in September after Hurricane Katrina devastated the Gulf Coast and pushed gas prices to a record, Bloomberg said. The percentage of consumers that saw jobs as hard to get rose to 25.4% from 23.1%. The expectations component of the index fell to 71.7 from 93.3. “Higher energy prices could sap some strength from real growth, but sentiment is likely to bounce once Katrina disruptions abate,” said Mike Englund, chief economist at Action Economics.
Durable Goods Orders for August rose 3.3% versus estimates of a .7% increase and a 5.3% decline in July. Durables Ex Transportation for August rose 4.2% versus estimates of a 1.0% gain and a 3.7% decline in July. US orders for durable goods rose a greater-than-expected 3.3% in August, rebounding as businesses sought to rebuild stocks depleted by surging sales, Bloomberg reported. Total shipments, a gauge of future sales, rose 1.7%, the most since December. As well, bookings for non-defense capital goods excluding aircraft, an indication of future business spending, rose 3.6% last month. Finally, unfilled orders, a measure of future production, rose 1.7%. “This sets the stage for a solid increase in investment in the third quarter, and if the manufacturing sector emerges from Katrina and Rita relatively unscathed, further healthy gains in the fourth quarter and beyond,” said Stephen Stanley, chief economist at RBS Greenwich Capital.
Final 2Q GDP rose 3.3% versus estimates of 3.3% and a prior estimate of 3.3%. Final 2Q GDP Price Index rose 2.6% versus estimates of a 2.4% gain and a prior estimate of a 2.4% increase. Final 2Q Personal Consumption rose 3.4% versus estimates of a 3.0% increase and a prior estimate of a 3.0% gain. The US economy grew at an above-average 3.3% annual rate in the second quarter, fueled by homebuilding and consumer spending, indicating the economy was strong entering the third quarter, before twin hurricanes slowed growth this month, Bloomberg reported. Growth in the US economy has now exceeded 3% for nine straight quarters, the longest streak since the 13 quarters that ended in March 1986. The core personal consumption expenditures index, Greenspan’s favorite inflation gauge, rose 1.7% versus a 2.4% over the first three months of the year. “Assuming that damage from Hurricane Rita does not substantially add to the woes of the energy sector, production and spending should return to normal over the course of the fourth quarter,” said Stephen Stanley. “We look for GDP gains to accelerate to around 4% in the fourth quarter and to pick up speed further early next year.”
Initial Jobless Claims for last week fell to 356K versus estimates of 418K and 435K the prior week. Continuing Claims rose to 2802K versus estimates of 2708K and 2658K prior. Workers dislocated by Hurricane Katrina pushed first-time claims for unemployment benefits to the highest in more than two years, Bloomberg said. About 103,000 claims last week were from people affected by the hurricanes. 214,000 people have now filed claims that were dislocated from the hurricanes. The four-week moving-average of claims rose to 376,250 from 347,250 the prior week. The insured employment rate, which tracks the unemployment rate, rose 2.1% from 2.0%. “Jobless Claims, when you exclude the Katrina-related effects, are among the lowest we’ve seen in the last five years,” said Tony Crescenzi, chief bond market strategist at Miller Tabak. “Even with the effects of Hurricane Katrina, the US economy will create close to the 2.2 million jobs generated in 2004,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi.
Personal Income for August fell .1% versus estimates of a .3% increase and a .3% gain in July. Personal Spending for August fell .5% versus estimates of a .2% decline and a 1.2% increase in July. The PCE Core(M-o-M) for August rose .2% versus estimates of a .1% gain and a .1% increase in July. US personal spending fell in August by the most in three years and incomes unexpectedly dropped, Bloomberg reported. Uninsured property losses from hurricane Katrina reduced personal income by about $100 billion. The savings rate gained to -.7% from -1.1% in July. Incomes rose 5.6% in August from the same month last year, paced by a 6.6% gain in wages and salaries, Bloomberg reported.
Final Univ. of Mich. Consumer Confidence for September came in at 76.9 versus estimates of 78.0 and a prior estimate of 76.9. US consumer confidence plunged by the most in 25 years after Hurricanes Katrina and Rita ravaged the Gulf Coast and pushed gasoline prices to record highs, Bloomberg reported. The expectations index, based on optimism about the next one to five years, dropped to 63.3 from 76.9. “We will actually see some growth from this,” Federal Reserve Bank of Kansas City President Thomas Hoenig said. “Over time, consumer confidence has stayed pretty strong and I think it will recover.”
Chicago Purchasing Manager for September rose to 60.5 versus estimates of 52.0 and a reading of 49.2 in August. Chicago-area manufacturing expanded more than expected in September, signaling that firms are able to cope with higher energy prices after Hurricane Katrina and Rita, Bloomberg said. The prices paid component of the index rose to 76.3 from 62.9. The new orders component soared to 63.4 from 46.5 the month before. The employment component of the index fell to 48.4 from 51.7.
BOTTOM LINE: Overall, last week's economic data were mixed. Weather held down housing sales to an extent. August was the ninth-wettest month on record in the South and the sixth wettest in the Central US. I continue to believe the nationwide housing market is slowing to more sustainable healthy levels. New home sales will fall again next month as the full brunt of Katrina and Rita is felt. Consumer Confidence will likely bounce sharply in the fourth quarter as energy price increases subside, the job market remains healthy and economic growth accelerates. Durables will likely take a tumble for September on Katrina, however another push higher is likely thereafter through year-end. GDP will temporarily dip below average rates this quarter before rebounding back to more vigorous levels into year-end and early next year. Measures of inflation are temporarily accelerating as a result of the hurricanes. However, leading indicators of unit labor costs, which account for two-thirds of inflation have begun to decline. I expect measures of inflation to begin decelerating again towards year-end. The worst is over for hurricane-related jobless claims. I expect claims to move modestly lower through year-end. The year-over-year gain in incomes of 5.6% is almost twice the rate of inflation and will help cushion the negative effects of the hurricanes over the next couple of months. The sharp increase in the Chicago Purchasing report even with the headwinds from the hurricanes is very positive. I expect manufacturing to continue to contribute to economic growth through year-end. In my opinion, the US economy has handled the effects of the hurricanes extraordinarily well. Finally, the ECRI Weekly Leading Index rose 1.12% to cycle highs of 135.80 and is forecasting accelerating healthy US economic growth.
