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Monday, May 31, 2010

Economic Data Summary: Week Ending May 28th, 2010

We've finally gotten to a point where I think all data series have had some level of explanation or are at least straightforward enough that we can cut right through them. In any case, the data this week were somewhat of a mixed bag, though still show that the economic recovery remains intact. Without further ado:

April New and Existing Home Sales

As expected both new and existing home sales had very strong months in April. New home sales were up 14.8% at an annual rate and existing home sales were up 7.6%. However, this was largely due to the homebuyer tax credit. As we have discussed previously, that is likely to distort the data going forward for some time to come. How much the distortion will be has yet to be seen, but my guess is that it will be significant. The depressed home sales in the coming months will probably weigh on prices that have otherwise firmed recently, which takes us to our next data...

March S&P Case Shiller House Price Index

Sputtering. That is the appropriate word to use for what had been some decent house price increases in mid through late 2009. Seasonally adjusted, house prices did edge up somewhat in March in the markets followed by the 10-city index, but the broader 20-city index fell slightly from 146.0 to 145.93. Not a huge decline, but still it does indicate that house prices are likely to remain moribund for some time to come.

One thing to watch for is if home prices actually start falling dramatically again. If that happens, the banks could come under some degree of pressure. However, it is more likely that home prices more or less stagnate for some time to come ranging between a few percent higher than this and a few percent lower. I would not be all that surprised if house prices are not materially higher than today five years from now on an inflation adjusted basis.

The FHA house price index showed a quarterly drop of 1.3%, by comparison. It's basically the same story, but a different version. Housing is still not a bright spot in the economy.

April Durable Goods Orders 

The headline number was pretty solid with a 2.9% increase over an upwardly revised March. In the last year, durable goods orders are up 16.8%, which is quite robust even given the pounding orders took in the recession. The components were not as strong as ex-transportation orders were down 1.0%, but that's after a 4.8% increase in March and a 2.1% increase in February. If there wasn't any pull back after those two months, that would have been surprising. Non-defense capital goods orders excluding aircraft, the primary indicator used to gauge what business investment is doing, were down 2.4% after 6.5% and 3.0% increases in March and February respectively.

So, while not the best number in April in some of the component areas, there is still every indication that the recovery in manufacturing remains intact.

Chicago PMI, Richmond Fed Manufacturing Index, Kansas City Manufacturing Index, New York ISM

Because we have beaten these to death in the past, I will give an abbreviated version and then a general sense after looking at all of them.

Chicago PMI: Very strong, but not as strong as April
Richmond Fed:  Very strong and only slightly weaker than April
Kansas City Fed: Barely growing, but businesses more optimistic about the future
New York ISM: Off the charts strong. How strong? On a scale that only goes to 100, where that indicates every business is seeing growth, it was 89.9.

With the exception of the Kansas City survey, these were all quite strong reports even if the Chicago and Richmond surveys were a little softer than April. The New York survey was so strong that I almost question the survey methods.

April Personal Income and Spending

Here, personal income was strong, but spending was weaker than expected. However, personal consumption grew very strongly in February and March so this may be just a breather as consumption is probably growing at closer to a 3% annual rate rather than a 5-6% annual rate as the previous two months would have suggested.

Personal income grew 0.4% and wage and salary growth is actually becoming a meaningful part of this. That is important because up until now virtually all growth had been coming from government transfer payments and reduced taxes which are not sustainable.

If the May employment report is strong, which it appears it will be, the outlook for consumer spending may not be strong, but it is stable and that is probably enough.

And the rest....

The revision to first quarter GDP shaved a little bit off the headline number at 3.0% compared to 3.2%. A little worrisome is that final consumption growth was revised down. Overall, it was still a strong quarter.

Jobless claims did fall as I had expected, but still remain in this ambiguous range where it is difficult to ascertain what the employment picture is from this series. Seasonal adjustments continue to be unreliable at this time of year so be cautious with anything you see out of this series. They still remain in the range of the last few months which would indicate strong headline employment growth.

Weekly retail sales were sluggish yet again and with a few warnings from some retailers my antennae are officially up in monitoring progress on retail sales. If we have a few more bad weeks strung together, then it is worth re-examining the outlook for consumer spending.

Finally, mortgage purchase applications fell slightly, but after the huge falls of the previous two weeks there was not much room left to go down. Once again, the homebuyer tax credit so distorted sales patterns that these data will be very troublesome to interpret for months to come.

Bloomberg Economic Calendar

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