New home sales and durable goods: economic reports

| 25 June 2008 09:49

Today’s economic data releases were for durable goods and new home sales

Durable Goods

Strong export growth has been keeping U.S. factories busier than they would normally be during a period of falling domestic demand. Orders had fallen for two straight months and are essentially unchanged since January. In April, durable-goods orders fell a revised 1%.
Orders for durable goods are down 0.1% through the first five months of 2008 compared with the same period last year. The figures are not adjusted for price changes.
-Economic Report: Flat demand for durable goods in May, MarketWatch, 24 Jun 2008

Month-to-month data is meaningless, especially for durable goods as it fluctuates wildly. Note, however, that the five-month trend shows durable good orders down on a year-to-year basis. This is a meaningful comparison. That says the economy is contracting.

New Home Sales

Builders continued to slash their prices to sell homes. The median sales price in May was $231,000, down 5.7% from a year earlier. The market share for the very cheapest homes and for the most expensive each rose sharply in May.
Builders were also making progress on reducing the number of homes for sale. The number of homes on the market fell to a three-year low of 453,000, representing a 10.9-month supply at the May’s sales pace, up from 10.7 months in April.

-New-home sales fall 2.5% in May to 512,000 pace, MarketWatch, 25 Jun 2008

This news was widely expected. The only thing to note is that we now have 10.9 months supply of new homes, up from 10.7 months in April. This means that the pace of building must continue to slow if the existing new home inventory is to be cleared out. Lower prices is the only way to clear out those homes. This will bring down the price of both new homes and competing existing homes as well.

Also, expect to see the slowing pace of home building to be reflected in the unemployment data in the months to come.

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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