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Daily Global Commentary

Weak Durable Goods Orders Report in January Sends Worrisome Signals

Wed, Feb 28 2007, 02:53 GMT
by Asha Bangalore

Northern Trust  |  View company's profile

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Led by a 60.3% drop in bookings of civilian aircraft, durable goods orders fell 7.8% in January after a 2.8% increase in December. Excluding transportation, orders of durable goods declined 3.1% in January vs. a 2.6% jump in December.

The January durable goods orders report shows widespread weakness across the different categories of durable goods. With the exception of orders for electrical equipment (+7.9%) and fabricated metals (+1.4%), all major categories – primary metals (-1.5%), machinery (-9.3%), autos (-5.1%), civilian aircraft (-60.3%), computers and electronics (-7.8%) – posted declines in January. On a year-to-year basis, orders of non-defense capital goods excluding aircraft moved up only 0.3%, the weakest since April 2004.

Shipments of all durable goods increased 0.2% in January, following a 0.5% gain in the prior month. Shipments of non-defense capital goods excluding aircraft, the proxy for capital spending, fell 2.7% in January, the largest monthly drop since September 2001 when the economy was in a recession (see chart 3).

Sales of Existing Homes Advance, But Weather Played a Role

Sales of existing homes rose 3.0% to an annual rate of 6.46 million units in January, the largest monthly gain in two years. The National Association of Realtors had this to say about existing home sales in January: “Although we’re expecting existing-home sales to gradually rise this year, and buyers are responding to the price correction, some unusually warm weather helped boost sales in January. On the flip side, the winter storms that disrupted so much of the country in February could negatively impact the housing market.” Therefore, it would be premature to announce that the housing market is stabilizing based on January’s sales tally.

Sales of single-family existing homes rose 3.5% to an annual rate of 5.69 million units. On a regional basis, sales of single-family existing homes rose in the South (+2.0%), Midwest (+4.8%), and West (+5.6%) but held steady in the Northeast.

The median price of a single-family home fell 3.5% from a year ago to $209,200 in January. The January drop in the median price of a single-family existing home is the sixth consecutive monthly reading that is negative.

Inventory of unsold existing homes held steady at a 6.6-month supply mark. The number of unsold existing homes in the market at 3.549 million units was 23.1% higher than a year ago.

Consumer Confidence Index Improves In February

The Conference Board’s Consumer Confidence Index advanced to 112.5 in February from 110.2 in the prior month. The Present Situation Index rose to 139.0 from 133.9 in the prior month. The Expectations Index moved up slightly to 94.8 from 94.4 in January. However, the University of Michigan’s Consumer Sentiment Index dropped 3.7 points to 93.3 in the early February estimate.

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Published on  Wed, Feb 28 2007, 02:54 GMT

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