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Durable goods orders: soft in June, transportation orders slowed

Mon, Jul 21 2008, 10:36 GMT
by BHF-Bank Economics Department

BHF-Bank

• July consumer sentiment: unchanged at depressed levels

Pending home sales rose 7.1% mom in April, only to fall back by 4.7% in May. Against this background, existing home sales recovered to 4.99m in May. However, as pending sales lead existing sales by 1 to 2 months, the April spike is likely to appear in the June sales numbers as well. So we expect existing home sales slightly higher at about 5.0m. In contrast, new home sales probably continued their downward trend. Housing starts and building permits for single-family units both dropped quite significantly in June. We therefore expect that new home sales fell to about 498k, below 500k for the first time since 1991.

We expect durable goods orders broadly flat in June. The new orders component of the ISM survey stood at 49.7 in June, indicating a slight contraction. However, output data shows that the production of equipment and durable goods overall rose in June. Indications for the transportation component are somewhat indecisive: According to corporate data, aircraft orders fell. Domestic vehicle sales and auto sales have been soft in June, but car production rebounded quite strongly. On balance, we judge the risk for durable goods orders ex transportation to be slightly on the downside.

According to the preliminary release, the University of Michigan consumer sentiment index was marginally higher in July, rising 0.2 points to 56.6. Given that the average 2000-07 level was around 90, the sentiment among consumers is still deeply depressed. As the latest weekly ABC consumer poll confirms the stabilization, we do not expect the July UoM index to be revised.

The next Beige Book, which summarizes anecdotal information gathered by each Federal Reserve Bank on current economic conditions in its district, will be published on Wednesday. The information serves as preparation for the FOMC meeting on August 5. We expect the Beige Book to maintain its assessment of the overall economic activity as “generally weak”. As retail sales have been somewhat softer in June, the more recent development of spending behaviour will be interesting, as will price setting behaviour, especially with respect to the ability or intention to pass on higher costs to customers.

Initial jobless claims have risen by 22k to 366k in the week ending 11 July. We expect jobless claims to rise to about 380k in the week ending 18 July, which is broadly in line with the 4-week average.

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Published on  Mon, Jul 21 2008, 10:43 GMT