According to reports released by the US Commerce Department today, both purchases of new homes and long lasting Goods Orders rose more than previously forecasted. The optimistic showing helped to reinforce the likelihood that the world’s largest economy may now be exiting one of the worst recessions in 70 years. However, are the numbers really that transparent and all telling? Taking a deeper look into the conditions and background of these figures, there might be evidence of something less than a glass half full mentality heading into tomorrow’s GDP figures.
New Home Sales Jump
Although new home sales jumped by a whopping 9.6 percent in the month, there is ample evidence for sector worry. Referencing the report, the pace of annual home sales accelerated to 433,000 and was the highest in four years. However, lending a hand of support for the figure seems to be the $8,000 tax credit implemented earlier this year. The program has helped to boost the housing figures since its inception in mid February. For the record, new home sales have steadily increased and beat estimates by four out of the last six months. But what happens when the tax credit program ends in the last days of November? The likely finalization of the program is likely to bring an end to the recent uptick in homeownership, which continues to remain underwater compared to last year’s levels. In comparison, rate of sales of new homes in 2008 were approximately 12.5 percent higher than now, with median prices that were 10 percent higher at $230,000. The good ol’ days.
Additionally worrisome is the fact that the positive results seemed to have stemmed from one region of the country. Rather than a broader lift in housing, a surge in the Northeastern states helped to prop the report up handsomely. In the month of July, new homes sales jumped by 32 percent in the area. This is a far cry from other regions of the country, which are still showing considerable losses of interest. With unemployment still a burden on a majority of the country, the one time surge in regional demand is likely to overshadow the continued economic pessimism that will likely translate into thin consumption for quarters to come.
Durable Goods Orders Rise From The Grave
Prior to revisions, US durable goods orders slid by a 2.5 percent clip in the month of June. However, the report managed to eke out an impressive 4.9 percent gain for July. This means that American consumers, previously thought to be under the gun, purchased longer lasting items like computers, automobiles and refrigerators. But once again, today’s figures may have led to premature economic partying. Excluding the usually volatile transportation component, the results actually gained a more mild 0.8 percent. The number is dismal when considering the pace of consumption was higher by 2.5 percent in the previous month. Machinery orders declined by 7 percent as the transportation portion added 18.4 percent to the figure on a 100 percent surge in orders for civilian aircraft. All in all, the durable goods orders, although still considered to be optimistic, remains in line with new home sales figures in overshadowing economic weakness still present in the US economy.
Targeting the US GDP Report
Ultimately, the realization of the softer economic landscape will likely surface in tomorrow’s gross domestic product report. Already posting a soft 1 percent contraction (compared to a 6.2 percent downfall earlier in the year), the figure is expected to contract slightly more this time around by 1.4 percent. Further slowdowns in consumption and manufacturing are likely to contribute heavily to the report as the findings derive results from the second quarter. The sentiment will for sure keep dollar bulls in the ring for a bit longer as traders exit riskier fx trades en masse for a safer currency asset.
