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Economic Watch: Latest Readings Show Mixed Results, Lower Expectations

Orders for long-lasting durable goods increased more than expected last month while a snapshot of manufacturing activity showed it slowed this month and there were mixed results for housing during February, according to four new economic reports.

Evan Lockridge
Evan LockridgeFormer Business Contributing Editor
March 24, 2017
Economic Watch: Latest Readings Show Mixed Results, Lower Expectations

 

5 min to read


Orders for long-lasting durable goods increased more than expected last month while a snapshot of manufacturing activity showed it slowed this month and there were mixed results for housing during February, according to four new economic reports.

The Commerce Department reported on Friday that new orders for items designed to last at least three years increased 1.7% in February from the month before. That beat Wall Street expectations and follows an upwardly revised 2.3% rise in January.

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The latest gain was led by transportation orders, which increased 4.3%. Excluding transportation, new orders were up 0.4%, the sixth straight monthly hike.

Shipments of durable goods improved 0.3% in February, the third increase out of the past four months

In contrast, new orders for nondefense capital goods minus aircraft, an indicator of business investment, moved down 0.1% in February, less than a consensus expectation of a 0.5% gain, following a 0.1% increase in January. This is the first drop in five months, but is up by an annual rate of 9.1% over the past three months.

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Much of the overall gain in durable goods orders was again due to a surge in volatile aircraft orders while other details in the report were disappointing, according to Sarah House, economist at Wells Fargo Securities.

“Potential cracks in the auto sector, which has been a bright spot in recent years, are beginning to emerge. Orders for vehicles and parts fell 0.8% and are nearly flat over the past year,” she said. “The pullback in orders, and shipments over the past two months, is consistent with the softer sales environment since early this year."

She noted that after falling the past three months, inventories, at least at the manufacturing stage, remain contained and should limit the near-term hit to production for motor vehicles and parts.

Such an overall slowdown in manufacturing that House described is evident in a preliminary report about the sector for this month.

The Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) for March declined to 53.4 from 54.2 in February, its lowest level in five months, according to financial information services provider IHS Markit.

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The reading is still well above the 50 “neutral value” that marked seven-and-a-half years of sustained growth across the manufacturing sector.

Mirroring the overall trend for business activity, the latest data signaled that manufacturing new order volumes expanded at the slowest pace for five months. This contributed to more cautious purchasing activity in March, alongside renewed efforts to streamline inventories, according to the report. Reflecting this, pre-production stocks were accumulated at the weakest pace since last September, while finished goods inventories dropped for the first time in six months.

“The U.S. economy shifted down a gear in March,” said Chris Williamson, chief business economist at IHS Markit. “A slowing in the pace of growth signaled by the PMI surveys for a second straight month suggests that the economy is struggling to sustain momentum."

A separate survey that lumps the performance of the manufacturing and services sectors into one index also showed conditions weakened in March, hitting a six-month low.

According to Williamson, the survey readings are consistent with annualized gross domestic product growth of 1.7% in the first quarter, down from 1.9% in the final quarter of last year.

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New Homes Up, Existing Homes Down

These reports follow ones on housing from earlier in the week that show a jump in new home sales while sales of existing homes declined.

Sales of newly built single family homes increased 6.1% in February to a seasonally adjusted annual rate of 592,000 units, according to the Commerce Department. This is a seven-month high and came despite slightly higher interest rates. Compared to a year ago, sales increased 12.8%.

“The uptick in mortgage interest rates is having a minimal effect on new home sales thus far,” said National Association of Home Builders Chief Economist Robert Dietz. “Ongoing job creation, rising household formations and affordable home prices should keep the market on an upward trajectory in 2017.”

New home sales account for about 10% of all home sales.

“New home sales surged well ahead of the consensus estimate, likely due to unusually mild weather in February, which pulled sales forward,” said Anika Khan, senior economist at Well Fargo Securities. “We suspect sales will slow in the coming months as the Nor’easter likely stalled activity.”

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Meantime, the drop in sales of existing homes during February came on the heels of those sales hitting a 10-year high the month before, 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, retreated 3.7%. Despite last month's decline, February's sales pace is still 5.4% above a year ago.

Lawrence Yun, NAR chief economist, said closings fell in February as too few properties were for sale and weakening affordability conditions stifled buyers in most of the country.

"Realtors are reporting stronger foot traffic from a year ago, but low supply in the affordable price range continues to be the pest that's pushing up price growth and pressuring the budgets of prospective buyers," he said. "Newly listed properties are being snatched up quickly so far this year and leaving behind minimal choices for buyers trying to reach the market."

The median existing-home price for all housing types in February was $228,400, up 7.7% from February 2016. That marks the 60th consecutive month of year-over-year gains.

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Single-family home sales, the biggest share of the market, declined 3% percent but are 5.8% above the pace from a year ago.

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