The Noise! Noisy Data Still Consistent with Improving Trend
- Existing Home Sales for September dipped by 1.7 percent, to a 4.75 million unit annual rate.
- The Leading Economic Index for September increased by 0.6 percent, after falling in August.
- Initial Claims for Unemployment Insurance jumped by 45,000 for the week ending Oct. 13, to 388,000.
Existing home sales gave back some of their August gains, but overall housing metrics remain on an improving trend. We have had a spate of noisy data, beginning with the large downward revision of Q2 real GDP growth to 1.3 percent. Then we had a major decline in September’s unemployment rate to 7.8 percent. We also saw house starts and permits spike in September. UI claims have been all over the place. Orders for durable goods lurched as commercial aircraft orders hit some turbulence. Today we saw some giveback in existing home sales for September, on the heels of a strong August report. There are no nefarious motivations behind the noisy data. Rather it represents a combination of squirrelly seasonal adjustment factors from late summer through early fall, lumpiness of data (in the case of commercial aircraft orders) and the fact that most economic data comes from sampling, rather than from counting entire populations. Underlying all the mechanical issues that introduce noise into the data stream is the fact that the U.S. economy is constantly evolving. We are living in a period of accelerated creative-destruction. (Are you having fun yet?) The ever-changing nature of the economy always puts data collection in catch-up mode, as statisticians struggle to keep pace with an increasingly complex economy. This is why it is vitally important to take a bundle of economic measures into account, rather than focus on one point and extrapolate from that single and imperfect observation. Housing markets are firming up. The inventory of existing homes for sale is down to a relatively normal 5.9 months’ worth. Prices are increasing, though some of the recent strong gains are due to the declining mix of low-priced distressed homes on the market.
The Conference Board’s Leading Economic Index for September increased by 0.6 percent, boosted by the strong housing permits data and by gains in equity prices. It was a reassuring triumvirate as the Coincident Index and the Lagging Index also gained for the month. Initial claims for unemployment insurance took a wild turn for the week ending October 13, spiking by 46,000 to hit 388,000. The trend in UI claims still looks sideways for now, indicative of a labor market that has not fundamentally improved since August, when the unemployment rate was reported at 8.1 percent.
Market Reaction: Equity prices are down. Treasury yields are down at the long end of the curve. NYMEX crude oil is down to $91.92/barrel. The dollar is up against the yen and the euro.
Click here for a PDF version of the Comerica Economic Alert: Home Sales 101912.