KEY DATA: Durables: +1.9%; Ex-Aircraft: +0.5%; Confidence: -0.4 point; Current Conditions: +5.7 points; Expectations: -4.5 points/Home Prices: +1%; Over-Year: 5.7%
IN A NUTSHELL: “The manufacturing sector continues to hold its own.”
WHAT IT MEANS: The momentum from the reopening of the economy doesn’t appear to be losing a lot of steam, despite a lack of stimulus. Durable goods orders soared in September, but the headline number is a bit deceiving. If you removed aircraft from the mix, since an order today usually doesn’t lead to much change in production for a while, you get a much more moderate rise. And if you just exclude civilian aircraft, orders would have been down. And it was not as if Boeing’s orders surged. Instead, they went from cancellations to new orders and that added greatly to total orders. The problem is that the details were quite mixed. While demand for metals, motor vehicles and communication equipment rose, orders for computers, machinery and electrical equipment were off. There was one clearly positive number in the report: The proxy for business capital spending, nondefense capital goods orders excluding aircraft, increased sharply once again. Businesses are investing.
The Conference Board reported that consumer confidence was down modestly in October. However, there was a major break between the current and future conditions segments. Not surprisingly, the current state of economic activity was viewed as getting better. But the hopes for a strong future economy faded. Consumers are beginning to worry that growth could get worse in the next six months and that could affect their spending decisions.
Another housing report, another blockbuster number. The Case Shiller national home price index rose sharply in August and the year-over-year gain keeps accelerating. Most of the twenty major metro areas posted gains. The only outlier was New York. The city’s housing market is being battered by the trend toward suburban living.
IMPLICATIONS:Thursday, the first estimate of third quarter GDP will be released and the data all point to a massive rise. The estimates range from about +25% to +35 and anything in that range will set a new record. But that is last quarter’s news. Where do we go from here? That is less clear. Housing is holding up and with mortgage rates at historic lows this sector should remain strong. But given how far it has come, can it grow a lot more? That is doubtful without getting into a real bubble situation. Job gains remain strong, but so are layoffs. That points to slowing payroll increases. And the stimulus money is running out quickly and if we don’t get something before the election, we may not get anything until next year. But that is speculation. The reality is that we haven’t seen any major softening in the economy. Businesses are investing, consumers are buying, homebuyers are frantically looking for something to buy at any price and the government, well it’s the government so let’s not say any more about that. Until the numbers actually start showing a slowdown, it has to be assumed that the fourth quarter will also be very good, but very good in traditional terms: Let’s say over 4% growth. The wild cards remain the surging virus and the uncertainty about a vaccine. That makes economic forecasting not much more than throwing darts. I’ve decided to switch to my left hand, since my right has not done particularly well lately.