Mixed Data Suggests Some Momentum Heading into Fiscal Drag
- December New Orders for Durable Goods gained 4.6 percent, led by military and commercial aircraft.
- The Case-Shiller 20-City Composite House Price Index for November gained 0.6 percent.
- The Conference Board’s Consumer Confidence Index decreased in January, after falling in December.
- The Dallas Fed’s Texas Manufacturing Index showed general business activity improving in January.
U.S. economic data at the start of the Federal Open Market Committee’s two-day meeting is mixed, but still consistent with the view that the economy turned the corner into 2013 with some momentum that will counter the increasing drag from fiscal tightening. We expect no changes to monetary policy with tomorrow’s FOMC policy statement. The most positive signals come from durable goods orders and from house prices. A negative signal comes from deflating consumer confidence. New orders for durable goods increased by 4.6 percent in December, boosted by aircraft orders. Commercial aircraft orders were up 10.1 percent for the month and defense aircraft orders were up 56.4 percent. Boeing’s problems with its 787 Dreamliner, which began in January, were not a factor in the December data. In the near-term, strong orders for older models will keep Boeing’s order book filled. A core measure of durable goods orders, for nondefense capital goods excluding aircraft, was up just 0.2 percent in December, after back-to-back 3.0 percent gains in October and November. The good news there is that Q4 core orders show that the Q3 stall in business fixed investment will not be repeated in the Q4 GDP numbers which will be released tomorrow.
Housing market data continues to be generally positive, although there are some cautionary yellow flags to note. The Case-Shiller 20-City Composite House Price Index for November was up 0.6 percent. Over the previous 12 months the index was up 5.5 percent. Nineteen out of 20 cities showed price gains for November, only New York had a decline. Over the previous 12 months Dallas house prices were up 5.7 percent, Detroit +11.9 percent, Los Angeles +7.7 percent, Miami +9.9 percent, Phoenix +22.8 percent, San Diego + 8.0 percent and San Francisco +12.7 percent. On the other hand, both new and existing home sales declined in December, and the pending Home Sales Index fell 4.6 percent in December, indicating soft sales numbers are likely for January. The Conference Board’s Consumer Confidence index declined noticeably in January to 58.6 after falling to 66.7 in December. These two declines erase all of the gains made in 2012. Of note is the fact that homes sales eased as consumer confidence fell. The Dallas Federal Reserve’s Texas Manufacturing Outlook Survey was positive in January. The current conditions general business activity index showed a solid gain, reflecting increased production, new orders and employment.
Market Reaction: U.S. equity prices are up. Treasury yields are down at the long end of the yield curve. NYMEX crude oil is up to $97.04/barrel. The dollar is down against the yen and the euro.
Click here for a PDF version of the Comerica Economic Alert: Durable Goods 012913.