Better Data Bolsters Case for GDP Rebound
- New Home Sales for April increased by 6.8 percent to an annual rate of 517,000 units.
- The Conference Board’s Consumer Confidence Index climbed moderately to 95.4 in May.
- New Orders for Durable Goods declined by 0.5 percent in April, after a 5.1 percent increase in March.
- The Case-Shiller 20-City Composite House Price Index increased by 1.0 percent in March.
Today’s grab-bag of generally improving U.S. data supports our expectations for a GDP rebound following the disappointing first quarter print of 0.2 percent real growth. Even though we expect that number to be revised to about -0.8 percent, we see economic momentum improving through the second quarter. U.S. consumers’ outlook was better in May according to the Conference Board’s Consumer Confidence Index. The index increased moderately to 95.4, after slumping to 94.3 in April. Improving labor market conditions were a contributing factor. With more workers in better jobs, more families are buying new houses. New home sales for April increased by 6.8 percent to hit an annual rate of 517,000 units after declining sharply in March. The April rebound in new home sales was concentrated in the Midwest, where sales gained 36.8 percent. The South gained 5.8 percent, while the Northeast declined by 5.6 percent and the West fell by 2.3 percent. The supply of new homes on the market fell to 4.8 months’ worth. New home sales are still very low compared to historical averages. However, the data for 2015 so far supports an upside breakout from the range-bound sales that we saw through 2013 and 2014.
House prices are still climbing. The Case-Shiller 20-City Composite House Price Index for March increased by 1.0 percent. Over the previous 12 months it was up by 5.0 percent, paced by San Francisco, which has seen gains of 10.3 percent over the past year. Denver is a close second at 10.0 percent gains, followed by Dallas at 9.3 percent. At the bottom of the list of 20 cities is New York, up 2.7 percent over the past year, and Cleveland and Washington D.C., both up 1.0 percent over the year. Solid house price appreciation is a major support to households, who are seeing the equity in their homes increase at a 9.9 percent year-over-year rate as of 2014Q4.
New orders for durable manufactured goods eased in April, down 0.5 percent after a strong 5.1 percent increase the month before. As is often the case, the headline new orders numbers were driven in March and April by volatile aircraft orders. Both defense and nondefense aircraft orders surged in March and then eased in April. A “core” measure of new orders shows more stability in the manufacturing sector. New orders for nondefense capital goods excluding aircraft gained 1.5 percent in March and then gained another 1.0 percent in April. There is no doubt that the drags from reduced oil drilling activity and the increased value of the dollar are weighing on manufacturers. The drag from reduced oil-field activity is especially evident in the regional manufacturing reports. The Federal Reserve Bank of Richmond reports flat manufacturing activity for May in the region from Maryland through South Carolina. However, the Dallas Fed said that Texas manufacturing activity fell sharply again in May.
Market Reaction: U.S. equity markets opened with losses. The 10-year Treasury bond yield is down to 2.16 percent. NYMEX crude oil is down to $59.79/barrel. Natural gas futures are down to $2.87/mmbtu.
For a PDF version of this Comerica Economic Alert click here: New_Home Sales 05-26-15.