New Orders Up on Auto and Aircraft Rebound, New Home Sales Sag
- New Orders for Durable Goods increased by 4.0 percent in July as auto and aircraft orders surged.
- Ex-Transportation New Orders gained a solid 0.7 percent even as computers and electronics dipped.
- New Home Sales for July slipped by 0.7 percent to a 298,000 unit annual rate.
- Builders remain very cautious, keeping months’ supply at 6.6 months, still high but well off the peak.
The manufacturing sector got a much-needed shot in the arm in July from resurgent auto production. The July Industrial Production Report showed vehicle assemblies up 10.6 percent to an 8.73 million unit annual rate. Regional manufacturing surveys outside of auto intensive areas remain weak into August. The Richmond Federal Reserve Survey of Manufacturing Activity showed a pull-back in August after stalling in July. However, auto-intensive areas around the Great Lakes and South Central are seeing renewed activity. The July Advance Report on Durable Goods showed total new orders jumping by 4.0 percent after declining by 1.3 percent in June. Motor vehicle and parts orders gained 11.5 percent for the month and nondefense aircraft orders, always volatile, gained 43.4 percent. Excluding transportation equipment, new orders increased by 0.7 percent, pushed up by a 10.3 percent increase in new orders for primary metals. New Orders for computers and electronic products were soft, declining by 3.4 percent as communications equipment dipped by 24.8 percent following strong gains in June and May. Total shipments were up 2.5 percent, providing some evidence of a lift to third quarter GDP. I expect Q3 real GDP growth to register about 2.1 percent, above the anemic 1.3 percent Q2 gain. However, I remain concerned about consumer spending for Q3 and Q4 as job creation remains impaired. I expect to see only about 75,000 net new jobs created in August and the unemployment rate stagnant at 9.1 percent. Ongoing weak job growth is a damper on consumer spending and weak consumer spending in 2011H2 threatens ongoing gains to auto production.
New home sales for July dipped below 300,000 to hit a 298,000 annual rate, down by 0.7 percent for the month. No new news here. Buyer caution increased as consumer sentiment took a dive in August. Builders will stay hunkered down until new home sales show signs of sustained gains. The best remedy for lackluster buying and building is job creation, which is likely to remain weak through August.
Market Reaction: U.S. equities opened soft but have reversed opening losses. Treasury yields are up at the long end of the yield curve. Oil is up to $85.63/barrel. The dollar is down against the yen and up the euro.