Saturday, 25 June 2005

US May durable goods and new home sales

The numbers on US durable goods orders and new home sales yesterday look good until you drill down.

Aircraft, defense boost May durable goods
New orders for U.S.-made durable goods, except for civilian aircraft and defense, showed unexpected weakness last month, casting some doubt on the economy's health despite continued strength in new home sales... Orders for long-lasting goods rose a larger-than-expected 5.5 percent in May, but orders fell outside of transportation. Excluding the volatile transportation category, orders for durable goods -- big-ticket items meant to last three years or more -- slipped unexpectedly by 0.2 percent. It was the third decline in the last four months for that category.

A separate report showed new home sales rose by a larger-than-expected 2.1 percent in May, although data for the prior three months were revised lower... The national median sales price of a new home fell to $217,000, its lowest in eight months, from $232,200 in April. The average sales price on a new home fell slightly in May to $281,400 from $282,500.

Barry Ritholtz gives his take on the durable goods orders report:

What does this all mean? Expect another quarter of subdued capital spending growth, and commensurately modest GDP gains.

However, the macroblog noted the positive take at

The headline data are stupendous as non-defense capital goods orders (read business investment) jumped 14.5% to leave a 28% yoy pace. Overall durable goods orders are 10.5% higher yoy as ex-defense orders stand 11% higher from a year ago. The strong return of business investment after the tax related Q1 slowdown is particularly impressive given that it comes from the airlines already belabored by high energy prices.

Meanwhile, Calculated Risk analyses the housing data.

Paul Kasriel of The Northern Trust Company analysed both the housing and manufacturing data and came away unimpressed, concluding:

[The FOMC] is going to raise its funds rate target by 25 basis points to a level of 3.25%. But it might give them some pause for thought about a pause after the June 30th rate hike. I would not be surprised if the FOMC removed the phrase "even after this action, the stance of monetary policy remains accommodative" from its policy announcement of the June 30th funds rate hike. If policy is no longer accommodative, it might be approaching "neutrality." The removal of this phrase sets the stage for the FOMC to pause either at the August 9 meeting or the September 20th one.

If manufacturing is not particularly vibrant in the US, it is not doing too well in the UK either.

Manufacturers' orders at weakest level since 2003
June brought no respite for the embattled manufacturing sector as orders fell further behind last year's and weak demand forced companies to cut prices, according to a survey from the CBI. Manufacturers' orders, which have deteriorated sharply over the past three months, weakened once again in June to reach their lowest level since October 2003, the CBI employers’ group said on Thursday... Price expectations of companies polled by the CBI in June were at their weakest since May 2004, with producers of consumer goods the most pessimistic. Average domestic prices are set to fall over the coming quarter, the CBI predicted...

Even in China, there is concern of a possible downturn.

Macro-control policy needs readjustment: researcher
China's overheated economy has softlanded successfully and it's time for China to readjust its strict macro-control policy to avoid possible deflation.

The remarks were made by Zhao Xiao, a researcher with the State-Owned Assets Supervision and Administration Commission (SASAC), the watchdog of state-owned assets in China, in an article published in Friday's China Securities Journal.

"The strict macro-control policy has scored remarkable achievements," Zhao said. "However, if the government sticks to a strict loan restrictions and continues to raise RMB interest rates, as some people suggested, China's economy will take a sudden turn downward," he added.

If so, the macro-control policy will have to be changed from prevention of inflation to prevention of deflation, he said...

All said, I still think it is too early to write off the US economic expansion, but as an engine of global economic growth, I think it may be losing some of its fire.

1 comment:

Ritholtz said...

The headline of the Durable Goods data was thanks to Boeing's Paris Air Show orders.

Back that "one-off" out, and you can see why the actual number was both below consensus, and weak.

The key takeaway is manufacturing is slowing, as the 2003 stimulus fades.

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