Economic Watch: Business Investment, Consumer Sentiment Strong as Home Sales Slip

Orders for long-lasting durable goods fell in April, but a closely watched proxy of business investment moved higher. And although sales of existing homes declined, consumer sentiment remains strong.

The Commerce Department reported on Friday new orders for durable goods fell 1.7% in April from the month before, as demand for new transportation equipment, mainly airplanes, tumbled 6.1%. This drop in new orders is slightly more than analysts were expecting.

When transportation orders are stripped away, new orders for durable goods increased 0.9%, the third straight monthly gain.

Shipments of manufactured durable goods in April, down following eight consecutive monthly increases, dropped 0.1%. Transportation equipment, down 2.1% following three consecutive monthly increases, drove the decline.

In contrast, the report showed business investment rebounded in April, as orders for non-defense capital goods minus aircraft rose 1% following a similarly sized March decline. Over the past 12 months these orders are up 6.6%, a sign of strong business investment.

Wells Fargo Securities noted other more recent readings on the manufacturing sector suggest growth has held up through the second month of the quarter. Four of the regional Federal Reserve manufacturing gauges have already been released for May, and all showed growth accelerating from April.

Consumer Sentiment Remains Stable

Consumer sentiment during May slipped by less than a point from last month, according to the University of Michigan Survey of Consumers.

Since Donald Trump's election, the Sentiment Index has meandered in a tight eight-point range from 93.4 to 101.4, with the small month-to-month variations indicating no emerging trend, according to Richard Curtin, the survey’s chief economist.

“Consumers have remained focused on expected gains in jobs and incomes as well as anticipated increases in interest rates and inflation during the year ahead,” he said. “As past expansions have shown, rising interest rates do not suppress spending gains as long as they are accompanied by more substantial increases in incomes.”

The May survey, however, found that consumers anticipated smaller income gains than a month or year ago, even though they anticipate the unemployment rate to stabilize at its current 18-year low.

Existing Home Sales Drop

After moving upward for two straight months, existing-home sales retreated in April, according to the National Association of Realtors

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 2.5% to a seasonally adjusted annual rate of 5.46 million in April from March. With last month’s decline, sales are now 1.4% below a year ago.

Lawrence Yun, NAR chief economist, said this spring’s staggeringly low inventory levels caused existing sales to slump in April.

“The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home,” he said. “Realtors say the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates.”

However, Yun noted inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.”

The median existing-home price for all housing types in April was $257,900, up 5.3% from April 2017, the 74th straight month of year-over-year gains.

Single-family home sales, the majority of the market, declined 3% to a seasonally adjusted annual rate of 4.84 million in April and are 1.6% below the sales pace a year ago.

The median existing single-family home price was $259,900 in April, up 5.5% from April 2017.

Existing condominium and co-op sales increased 1.6% to a seasonally adjusted annual rate of 620,000 units in April, unchanged from a year ago.

The median existing condo price was $242,500 in April, which is 3.4% above a year ago.