It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:
#1—Durable Goods Signals Higher Business Spending
In August, durable goods orders climbed 0.1%. This outpaced economists’ expectations of a 1.5% decline. However, July’s durable goods orders were revised down further; while the initial data indicated a 7.4% drop in orders, the latest data reflect an 8.1% plunge. Nondefense capital goods rose 1.5% in August after falling 3.3% in July. In light of the fact that Boing only received orders for 16 new aircraft in August, down from 90 in July, the August durable goods report was actually very positive. Orders for vehicles and parts rose an impressive 2.4% in August, the fastest annual pace since December 2007. Core capital goods rose for the fifth time in six months. So from where I’m standing, the manufacturing sector continues to steadily improve.
#2—New Home Prices Near Record Highs
In August, new home sales reached an annual rate of 421,000. This is 7.9% higher than the revised 390,000 selling pace seen in July but came below the 425,000 consensus estimate. The median sale price for a new home is now $254,600, which is still near record highs. There is currently enough inventory for a five-month supply at the current selling pace. In the past 12 months, new home sales have advanced 12.6%. Meanwhile, housing prices are also up more than 12% in the past year. However, this growth may moderate going forward. Mortgage rates, while still low, have been on the rise ever since they hit rock bottom in May.
#3—Surprisingly, Layoff Activity Continues To Fall
Last week, initial jobless claims declined 5,000 to an annual rate of 305,000. This was below economists’ estimates of 330,000 new claims. Meanwhile, the four-week moving average declined to 308,000. This was an interesting week for jobless claims. Now that California and Nevada have fixed their computer glitches, the expectation was that we’d see a rebound in jobless claims with the complete data. However, the number continued to decline, a good sign for the jobs picture. The four-week moving average is now at the lowest level since June 2007.
#4—Q2 Economic Growth Stays the Course
The third and final estimate for second-quarter GDP growth remained unchanged at 2.5%. Economists had expected the measure to be revised up to 2.6%. The portions of the U.S. economy that decelerated compared with the first quarter were personal spending, nondurable goods orders and services. The metrics that improved were nonresidential fixed investment, private inventories, exports and federal government spending. While we would have all liked to have seen the new reading beat the consensus estimate, the U.S. economy is still growing at a moderate pace. To put it into context, GDP expanded just 1.1% in the first quarter.
#5—Make More, Spend More, Save More
In August, consumer spending rose 0.3%, above the 0.2% consensus estimate and the revised 0.2% gain in July. The personal savings rate ticked up from 4.5% in July to 4.6% in August. Meanwhile, personal income climbed 0.4%. Not only did this top economists’ expectations of a 0.2% rise, it represents the biggest jump in income since February. The good news is that consumers are making a little more, so they’re both spending and saving a little more. However, one thing that’s helping matters is persistently low inflation. When inflationary pressures finally kick in, we could see this weigh on personal spending.
#6—Consumer Confidence—By Two Measures—Wavers
In September, the Conference Board’s consumer confidence index declined to a reading of 79.7. This is slightly below August’s reading of 81.8 and was below economists’ expectations of 83.0. Interestingly enough, the current conditions index ticked up from 70.9 to 73.2 in September, while the future expectations index fell from 81.8 to 79.7. The September reading could have been stronger. However, keep in mind that consumer confidence for September was only a little lower than the 82.1 reading we saw in June—the highest in over five years. A healthy economy typically coincides with a confidence rating of 90 or higher, but we’re still seeing gradual improvement.
In September, the University of Michigan’s consumer sentiment index rose to a reading of 77.5, compared with the preliminary estimate of 76.8. However, this is lower than August’s 82.1 reading and below economists’ consensus estimate of 78.0. The current conditions index rose from the preliminary reading of 91.8 to 92.6 while the economic outlook index climbed from 67.2 to 67.8. These results largely coincide with what we saw from the Conference Board’s consumer confidence index: Worries about the job market have apparently resurfaced and are weighing down overall consumer confidence.
Have a nice weekend,
P.S. If you live around Seattle, Washington, please join me for a free seminar in two weeks. I’ll be speaking at the Hyatt Regency Bellevue in Bellevue, Washington, on October 9, and will review where investors can achieve the highest yields in both bonds and stocks, as well my current market outlook, favorite stock picks and have an extensive question and answer session. To reserve your spot, please call 800-454-1395 or email [email protected]. For more information, please visit my events calendar here. I hope to see you there!