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Economic Watch: Durable Goods Mixed, New Home Sales Best in 9 Years

October 27, 2016

By Evan Lockridge

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Shipments and new orders for long-lasting manufactured durable goods were varied in September. While home sales continue growing, one key economic indicator fell.

The increase of 0.8% in shipments last month is the third in the last four months and was led by a 2.3% increase in transportation orders.

In contrast, new orders for manufactured durable goods dropped 0.1%, led by a 0.8% drop in transportation equipment orders. That follows a 0.3% overall August improvement. Excluding transportation, new orders increased 0.2%. Excluding defense, new orders increased 0.7%

The overall September drop is smaller than a 0.6% decline expected by a panel of economists surveyed by The Wall Street Journal.

Orders for nondefense capital goods excluding aircraft, a proxy of business investment, fell 1.2% following three straight months of gains. It's 3.9% lower so far this year  compared to the first nine months of last year.

“Machinery orders are just beginning to climb out of the hole created by the collapse of manufacturing activity in response to the strong dollar and oil bust," said Diane Swonk, analyst at DS Economics. “In fact, investment appears to have bottomed in the oil industry; we saw signs of a modest turnaround over the summer, which we expect to gain momentum in 2017.”

On a more positive note, a preliminary report released a few days earlier showed manufacturing has recovered at least somewhat this month. The Flash U.S. Manufacturing Purchasing Managers’ Index from the financial information services provider IHS Markit rebounded to a level of 53.2 in October, from a three-month low of 51.5 in September.  

Single-Family Home Sales Nearly 30% Higher

Sales of new single-family homes in the U.S. unexpectedly jumped in September, according to new Commerce Department figures, hitting the second highest level since the Great Recession.

The seasonally adjusted annual rate of 593,000 is 3.1% above the revised August rate of 575,000 and is 29.8% higher than the September 2015 estimate of 457,000. It was slightly below a consensus estimate from analysts, but is the highest in nearly nine years.

August was first reported by the department as hitting a level of 609,000. Despite this downward revision, new home sales so far this year are running 13% higher compared to this time in 2015.

New home sales picked up markedly at the end of the third quarter, thanks in part to surging demand in the Northeast, according to Stifel Fixed Income Chief Economist Lindsey Piegza.

“Increasingly volatile month-to-month, housing activity lost a bit of momentum through the fall months, but maintains a steady, positive slope on a longer-term basis from a 2010 low,” she said. “Thus, with an expectedly minimal contribution to topline growth in Friday’s gross domestic production report, residential investment remains a silver lining amid an otherwise lackluster [economic] recovery.” 

The report follows one earlier in the week showing existing home sales rebounded strongly in September, propelled by sales from first-time buyers reaching a 34% share – a high not seen in over four years, according to the National Association of Realtors.

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