Comerica Economic Weekly

There was good news in this week’s data stream, and a significant warning flag. The warning flag came in the form of much-weaker-than expected new home sales for March. New home sales for March fell sharply, down 14.5 percent, to a 384,000 unit annual rate. That was the worst sales rate since last July. The months’ supply of new homes increased to 6.0 months in March. That could come down quickly if April and May sales rebound as expected. According to the Census Bureau, the median sales price of a new house was up 12.6 percent in March from a year ago.

Because of the lead time between offers, contracts and sales, we remain optimistic that the upward trend in new home sales, visible since early 2011, reasserts itself soon. Likewise we remain optimistic that the recent downward trend in existing home sales, that began last August, reverses itself soon. One support for our optimistic outlook is that mortgage applications for purchases (as opposed to refinance) were up in late March through early April. Also, mortgage rates have eased through April. One final supportive point, the overall economy is improving. Job growth in February and March was solid. Most other U.S. economic indicators are positive. Still, if home sales do not lift soon, that would be a fundamental challenge to our cautiously optimistic outlook for the U.S. economy.

Existing home sales were essentially unchanged in March, yet officially down 0.2 percent to a 4,590,000 unit annual rate. The months’ supply of existing homes on the market ticked up to 5.2 months in March. According to the National Association of Realtors, the median sales price of an existing home was up 7.9 percent in March from a year earlier.

The good news this week came from the durable goods report. New orders for durable goods increased by 2.6 percent in March, following a 2.1 percent increase in February. New orders for durable goods is a somewhat volatile series, but it is an important leading indicator for manufacturing activity and also a leading indicator for business investment. A 2014 revival of business investment would be consistent with the increase in commercial and industrial loans visible in the Federal Reserve’s data for February and March.

Initial claims for unemployment insurance increased by 24,000 for the week ending April 19, to hit a level of 329,000. This was a bigger-than-expected increase, but it still leaves the initial UI series well within the range consistent with moderate job creation. Continuing claims for the week ending April 12 declined by 61,000 to hit 2,680,000.

The University of Michigan’s Consumer Sentiment Index increased strongly from 80.0 in March to 84.1 in April. The stars appear to be aligning for a stronger consumer sector in 2014, which will support housing.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 04-25-14.

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