Not a pretty set of data out this morning. There are increasing signs that this economy is sinking like a rock without government aid.This morning’s new homes sales and durable goods orders were much weaker than expected.
Like the existing homes report yesterday new homes sales missed by a very wide margin. Econoday details the report:
“The mid-year dip that everyone expected following the April expiration of second-round housing stimulus is proving to be very deep. Yesterday’s existing home sales report came in far below expectations as did today’s new home sales report.
New home sales fell 12.4 percent in July to a record low 276,000 unit annual rate. Like the existing home sales report, declines swept all regions. Also like the existing home sales report, supply rose steeply, to 9.1 months from June’s 8.0 months. Unlike yesterday’s report, prices for this report show weakness. The median price is down 6.0 percent to $204,000 for a minus 4.8 percent year-on-year comparison. The median price is the lowest since 2003.”
Not good news by any means. Housing remains, arguably, the linchpin of the entire economy. The surge in supply and decline in price is really the last thing any bull wants to see currently. The drop in prices is shocking and should be followed by declines in other price metrics over the coming weeks and months.
In other news durable goods missed by a wide margin to the downside. Analysts were expected a 2.5% MoM increase, but orders rose just 0.3%. As we noted last month, this is a particularly alarming change in trend due to the very high correlation between employment and durables:
“Last week’s data on durable goods might be the most important piece of data we’ve seen in many months. As David Rosenberg has previously noted, durable goods have a disturbingly high correlation with jobs growth over the last 15 years. This chart shows just how tightly correlated the labor market is with the change in durables. Last week’s data showed the second consecutive downtick in durable goods orders. While this is by no means a trend it does appear to rhyme with the continuing weakness in the labor market and the hesitancy of companies to bring on new workers. The next few readings could be quite telling. Renewed weakness in durables could be a good sign of what’s to come.”
These are not good signs for the bulls who believe we are in a sustained recovery. As the stimulus wanes it is becoming increasingly apparent that real underlying aggregate demand is very weak.