How to Make Sense Of the Post-Shutdown Economic Reports

Now that the government is up and running again, we got some interesting economic reports this week that had been delayed because of the shutdown. So let’s spend some time today reviewing what we’ve missed from the past few weeks.

The Housing Recovery

Con: Existing Home Sales Cool

In September, existing home sales fell 1.9% to a seasonally adjusted annual rate of 5.29 million. Economists had expected sales to fall to a rate of 5.15 million so the drop didn’t come as a big shock. Meanwhile, the supply of homes for sale remained at five months.

The housing market recovery has started to cool on higher mortgage rates. However, progress continues. Over the past year, existing home sales are up 10.7%. The median price of a home has risen 11.7% to $199,200, the tenth straight month of double-digit gains. The average home for sale is now on the market for 50 days, down from more than 70 days a year ago.

Pro: Construction Spending At Multi-Year High

In August, construction spending rose 0.6% over July to an annual rate of $915 billion. This was a larger jump than expected, as economists had called for a 0.3% rise. Notably, construction of lodging units (including hotels and motels) jumped 2.6% over July.

Thanks to the housing recovery, construction spending is now near a four and a half year high. Compared with August 2012, construction spending has grown 7.1%. The bulk of construction spending—$640.5 billion in August—is coming from the private sector.

The Jobs Picture

Con: September Payrolls Trail Estimates (Pro: Unemployment Rate Retreats)

In September, only 148,000 new payroll jobs were created, well below economists’ consensus forecast of 185,000 jobs. The unemployment rate declined fractionally from 7.3% to 7.2% and the average workweek remained at 34.5 hours.

Clearly the payroll data were somewhat mixed. The good news was that August payrolls were revised significantly higher by 24,000 to 193,000. The bad news was that July payrolls were revised lower by 15,000 to 89,000. The unemployment rate is at its lowest point since November 2008, but that’s because the labor force participation rate is now near 35-year lows. So the key takeaway is that the jobs market is still sputtering and the Fed won’t likely switch off the money pump anytime soon.

Con: Layoff Activity Remains High

For the week of October 19, initial claims for unemployment dipped 12,000 to an annual rate of 350,000. Economists had expected claims to fall to 330,000 so layoff activity remains higher than expected. Meanwhile, the prior week’s claims were revised up from 358,000 to 362,000.

Between the computer glitches that skewed jobless claims numbers in California and the government shutdown, it’s difficult to tell whether this is the new normal for layoff activity. What’s telling about this report is that the four-week moving average increased by 10,750 to 348,250.

Private Sector Snapshot

Pro: Headline Durable Goods Advance (Con: Core Capital Goods Decline)

In September, durable goods orders advanced 3.7%, slightly higher than the 3.5% rise forecast by economists. The headline gain was largely due to a 58% surge in commercial airplane orders.

While I like the headline results, the details are a bit murkier. Excluding transportation orders, durable goods actually declined 0.1%. Core capital goods, which are indicative of business sentiment, declined 1.1% in September. This is the second significant decline in the core measure in three months so it appears that business confidence is starting to wane.

Pro: Wholesale Inventories Gain

In August, U.S. wholesale inventories jumped 0.5%, topping economists’ expectations of a 0.2% gain. July wholesale stockpiles were also revised up to reflect a 0.2% climb, up from 0.1% earlier. Sales at wholesalers climbed 0.6%, also beating expectations. At the current sales pace, wholesalers still have enough goods on hand to last 1.17 months, indicating the leanest stockpiles since September 2011.

This week’s economic reports ended on a strong note, thankfully—this represents the largest jump in wholesale inventories in seven months. However, even with these wholesale inventories numbers, it appears that third-quarter growth is shaping up to be at the low end of expectations.

Have a nice weekend,

Louis Navellier

Louis Navellier

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