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Durable goods orders are not likely to have rebounded in March

Tue, Apr 22 2008, 11:07 GMT
by BHF-Bank Economics Department

BHF-Bank

• Existing and new home sales could have continued declining in March

• UMI’s final April consumer sentiment could remain close to its 26-year low

In February, existing home sales had risen for the first time in seven months, perhaps due to lower prices. However, the pending home sales index fell to a cyclical low in February, and as it is regarded as an indicator of future existing home sales, the latter will probably have decreased further in March, from 5.03m to 4.85m.

Whereas the inventories-to-sales ratio of existing homes decreased slightly in February, it remained higher for new homes at 9.8 months, and median prices rose compared with the previous month. We forecast that new home sales will have fallen further from 590k to 585k in March, which would indicate that the pace of decline has slowed somewhat.

Almost as expected, initial jobless claims went up by 17k to 372k in the week ending 12 April. The 4-week moving average remained relatively high at 376k. In the past, jobless claims have had to rise above 400k before being accompanied by declines in non-farm payrolls, but this time, payrolls have already been falling for three months, by a total of 232k. We expect initial jobless claims to have gone up further to about 385k in the week ending 19 April, as the weakness in the US economy is spreading.

After having declined by 4.7% in January, durable goods orders fell significantly again by 1.7% mom in February, despite the fact that aircraft orders had rebounded as expected. The weakness was particularly marked for non-defense capital goods orders ex aircraft, which have now fallen for the fourth time in the past five months – an alarm signal for business investment activities. Durable goods orders are fairly volatile, and thus a rebound cannot be ruled out. However, as Boeing figures indicate a decline in aircraft orders by about 20% mom, and the ISM new orders component fell back further, we are only expecting March durable goods orders to have remained unchanged, despite a possible recovery in automobile orders. However, durable goods orders ex transportation might have increased slightly by 0.5% mom, after having declined by more than 3.5% in the first two months of the year.

The University of Michigan’s (UMI) preliminary April consumer sentiment fell sharply by 6.3 points, as consumers’ worries about economic weakness and rising inflation had intensified. We forecast that UMI’s final April consumer sentiment will remain at its current level, which is a 26- year-low. As the graph shows, this would be in line with the level of the weekly ABC consumer comfort poll, which plummeted to –39 in the first third of April.

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Published on  Tue, Apr 22 2008, 11:10 GMT