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…
Existing Home Sales
According to Wednesday’s report from the National Association of Realtors (NAR), existing home sales in February climbed 3% higher to an annual rate of 5.54 million. This is a welcome improvement from the 3.2% decrease in January’s existing home sales. Economists were looking for existing home sales to rise 0.5% to a rate of 5.40 million units in February, so the results handily topped expectations. If you recall, existing home sales account for nearly 90% of U.S. home sales.
While condo and co-op sales declined 6.5%, single-family home sales jumped 4.2%. Median existing home prices for all housing types surged 5.9% year-over-year to $241,700, marking the 72nd-straight month of year-over-year price gains.
In the end, this stronger-than-expected existing home sales report was great news for the week. Despite tight inventory and rising mortgage rates, buyers shopping for existing homes were not deterred last month, and ended two-straight months of decline. However, February’s 3.4 month supply indicates that median home prices on existing homes will continue to rise.
Index of Leading Economic Indicators
On Thursday, February’s Leading Economic Indicators (LEI) report saw its fourth consecutive month of gains, rising 0.6% to 108.7. Despite heightened stock market volatility and weak new home sales, February’s results exceeded economists’ expectations for a 0.4% increase. I would be remiss if I didn’t note that the LEI’s six-month growth rate has not been this high since the first quarter of 2011. The continuing improvement in the LEI implies that the U.S. economy is on a firm footing, and could signal improved GDP growth down the road.
New Home Sales
On Friday morning, the Commerce Department announced that February’s sales of newly built single-family homes fell for the third month in a row. Sales of new U.S. homes dropped 0.6% in February to an annualized rate of 618,000. Last month’s sales were just shy of the 620,000 rate that economists surveyed by the Wall Street Journal were expecting.
Digging into the details, new home sales are up 0.5% in the past 12 months. Median sales prices rose 9.7% year-over-year to $326,800. While this pricing strength is probably good news for residential investment, it remains a deterrent to home buyers attempting to enter the market for new homes. Also, the inventory of new homes for sale rose to a 5.9-month supply in February, up from a 5.8 month supply in January. This is the highest level since August.
Overall, while data on new home sales can be volatile from month-to-month, it’s clear that new home sales continue to decelerate and disappoint. Rising mortgage rates and prices appear likely to remain near-term culprits to new home sales. This continued weakness is part of the reason why we saw a “dovish” FOMC statement earlier this week.
Durable Goods Orders
Also on Friday morning, the Commerce Department announced that durable goods orders jumped 3.1% to $247.7 billion in February, up from a revised decline of 3.5% in January. Excluding defense, new orders increased 2.5%. Orders for non-defense capital goods orders excluding aircraft, which if you recall, is a proxy for business spending plans, rose 1.8% last month. Shipments of core capital goods climbed 1.4% higher, its largest increase since December 2016.
All-in-all, considering that economists were only calling for 1.5% growth in durable goods orders, I think manufacturing activity is firming up and is going to show remarkably strong results in the coming months. In fact, February’s results cap two-straight months of decline. Couple this renewed strength in shipments along with February’s improved industrial production, and we could see economists begin to raise their first-quarter GDP estimates.
That’s all I have for you this week. I’ll be in touch again next week with the latest ratings out of Portfolio Grader.
Until next week,