So-So Data Fails to Vanquish Lingering Uncertainty
- Real Gross Domestic Product increased at a 2.5 percent annualized rate in 2013Q2 in the third estimate.
- New Orders for Durable Goods increased by 0.1 percent in August.
- Sales of New Homes bounced back by 7.9 percent in August after dipping in July.
- Initial Claims for Unemployment Insurance fell by 5,000 to hit 305,000 for the week ending Sept. 21.
Reading between the lines of the Federal Open Market Committee’s announcement of no QE taper last week, we get the sense the FOMC collectively has a sense of lingering uncertainty about the economy. Some metrics are showing strength, others leave doubts about the durability of that strength. Economic indicators from yesterday and today fail to vanquish that uncertainty. The third estimate of real GDP growth for the second quarter was unchanged at a 2.5 percent annualized rate. The U.S. economy had more momentum in Q2 than originally expected, helping to buffer the drag from fiscal tightening and weak global demand. New orders for durable goods increased slightly, by 0.1 percent in August. This followed a big 8.1 percent decline in July. July orders were soured by weakness in computers and communications equipment, and by a downdraft in commercial aircraft orders. The stability visible in August is welcomed news, but it is less than a “normal” bounce-back from a weak July. On a year-ago basis, new orders for August were up 9.9 percent, so that is looking reasonably strong. However, just looking at the raw data we do see some flattening out of new orders in 2012 and 2013. Sometimes that flattening out is a precursor to a pullback, other times it can give way to a re-acceleration. Improving prospects for rest-of-world demand next year, less drag from fiscal tightening, and a more solid household sector all augurs for a reacceleration of capital spending. However, a dysfunctional federal budget process may keep consumer and business confidence in check.
New home sales rebounded by 7.9 percent in August, after falling by 14.1 percent in July. The July dip may turn out to be an outlier but it also serves as a warning that new home sales are more vulnerable to the headwinds from rising mortgage rates than existing home sales. The August new home sales rate of 421,000 is still at the low end of “normal”, leaving ample upside potential. The months’ supply of new homes tightened up in August to 5.0 months’ worth at the current sales pace. Initial claims for unemployment insurance decreased by 5,000 to hit 305,000 for the week ending September 21. Technical issues in processing claims in California, which have contributed to lower claims in recent weeks, have been resolved according to the Department of Labor. There may still be some catch-up from the technical glitches, but that trend looks strong for now.
Market Reaction: Equity markets have given up their opening gains. The 10-year Treasury bond yield is up to 2.65 percent. NYMEX crude oil is at $102.99/barrel. The dollar is up against the yen and the euro.
For a PDF version of this Comerica Economic Alert click here: GDP 092613.