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Monday, July 5, 2010

Economic Data Summary: Week Ended June 25th, 2010

This is belated on my part and for that I apologize. Two weeks ago, we had a fairly rough raft of economic data and that situation actually only intensified the next week as we all saw. I will whip through these as gingerly as possible to keep us flowing.

May Existing Home Sales and May New Home Sales

These reports were gross and grosser. Existing home sales dropped 2.2% to 5.66 million at an annual rate from April to May, which was well well well below expectations of 6.2 million. Inventory to sales ratios have ballooned out to over 8 months again. There was almost nothing good to say here so I will not even attempt to. I fully expect that sales will be horrid in June as well as throughout the summer before beginning to pick up again, at a seasonally adjusted rate anyway, toward the end of the year. Any improvement then will be slow.

New home sales were catastrophic (watch until about the 0:30 mark for the proper visual of this report). The consensus was for a 400,000 annual rate and they came in at 300,000. I've rarely seen a miss quite that bad in any report. Inventories once again surged to over 8 months, which is a level consistent with price declines in the future. The expiration of the tax credits has had a massively negative impact on home sales. Going forward it will be hard to piece together what the real estate market is looking like, but suffice it to say that it will not be positive for some time to come.

May Durable Goods Orders

This is one of the most volatile economic numbers and it did not disappoint in that regard in May. The headline number was down 1.1% while ex-transportation they were up 0.9%. Most categories actually increased, but airplane orders caused the volatility here. For the best comparison, here is non-defense capital goods ex-aircraft:

As you can see, we are having a much more rapid recovery in business spending in this recession than in the prior recession. In this category, the fall was not actually much worse either. This is one of the very encouraging aspects of this recovery for all of the disappointments.

Richmond Fed and Kansas City Fed June Manufacturing Surveys 

Mixed bag here, but it does reflect that the manufacturing recovery might be slightly running out of gas, at least for a brief period. The Richmond Fed survey showed what still look to be solid numbers indicating a decent clip of growth. They noted that optimism is waning a bit, but I would not characterize this as a weak report.

Kansas City barely showed any growth at all, though you often have to put several of these months together to get a proper idea. It bares watching a few weeks from now when these reports come out again. If they show further deterioration, I will begin to get somewhat more nervous. Patchy regional growth is somewhat worrisome as we had seen such strong synchronized growth for a few months in a row. Still, if you look at the history of these indicators you will see a lot of chop in them. The chop only gets troubling when it coincides with other signs of weakness just as a pain in your chest may be nothing, but if your arm goes numb and you become lightheaded, then it might be time to worry.

And the rest....

GDP was revised down to a 2.7% growth rate in the first quarter. There's not much to say there except that international trade is once again becoming a persistent drain on GDP growth. China's currency manipulation along with a rebound in oil prices have done some damage.

Jobless claims for that week edged down from an earlier spike, but that has been a back and forth motion for some time now. It is very difficult to read much into these figures for now. They have been translating into weaker than expected employment reports lately so that relationship might be making sense again.

The weekly retail sales reports for that week were soft, indicating a slightly weak June, though nothing cataclysmic. I will be curious what the retailers say this coming week as they report their monthly sales. They might give us a hint into July.

Finally, MBA indicated that purchase applications and refinancings remain soft. This is no surprise, though with the recent plunge in long term bond rates, look for both of these to start increasing again some time in the future. If they don't, then consumers have really and truly turtled up.

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