Durable goods orders rose more than expected in September, up +9.9% versus a consensus forecast of +7.5%.  The underlying components, however, were mixed, as the transportation component (mostly aircraft orders) made the largest contribution to results.  Ex-transportation, orders were up +2%, and the ‘core’ capital orders measure was flat on the month.  Shipments were relatively weak, with those for core goods only rising +0.9% and revised down a bit for earlier periods. 

The Richmond Fed manufacturing index came in weaker than anticipated for October, at -7 versus +4 for September and lower than the forecast similar level of +5.  The report’s composition was also softer, mostly in the areas of new orders and shipments; however, wages were improved slightly.  Inflation also jumped to the highest levels in almost a year, a reflection on commodity price increases.

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The monthly ISM manufacturing index number for September rose more than expected, from 49.6 to 51.5 (versus consensus expectations of 49.7).  Contained in the report were increases in new orders, production, employment and supplier deliveries (virtually every category).  Non-manufacturing ISM was also higher than expected for September, with a rise from 53.7 to 55.1, which was higher than the anticipated 53.4.  The details of the report showed strong readings from new orders as well as readings of general business activity.  On the more negative side, the employment component fell a bit, and prices paid rose. Read more

It was the week of the month dominated by housing numbers.

The NAHB homebuilder sentiment index rose from 37 in August to 40 in September, which beat consensus estimates of a 38 figure, and was led by all three index components:  current sales, expected future sales and prospective buyer traffic.  The other good news is that that the index is now at its highest level since mid-2006.

Housing starts rose less than expected in August, at +2.3% month-over-month versus a forecast +2.8%.  This translated to an annualized level of 750k units, which is better than the 500k and under figures we became used to during the depths of the financial crisis, but remains below the long-term average level of a million homes a year we need to keep up with population growth.  So, better, but still room to go.  The good news in this report is that the increase consisted of a +5.5% rise in single-family starts, which offset a nearly -5% drop in starts from multi-family (a surge in multi-family building has been the recent trend).  Housing permits fell -1.0% in August, month-over-month, which was better than the expected drop of -1.9%.

Existing home sales rose strongly in August, up +7.8% to an annualized level of 4.82 million units, versus a forecast +2.0% gain.  The gain in sales occurred in both single-family homes and condos, although the single-family homes figure was a bit better.  This represented more good news for housing, as were existing home prices, which came in at a +9.5% gain on the trailing year.  The months’ supply of homes fell to 6.1 months. Read more

Last week saw many important economic developments that – for most investors – made for a very good week.

Positive

Probably last week’s biggest news came out of Europe.  Germany’s Constitutional Court ratified the country’s participation in the 700-billion-euro European Stability Mechanism (ESM), the euro zone bailout fund.  Germany is liable to contribute 27% of the ESM, or about 190 billion euro.  Combined with the European Central Bank’s plans to buy the government bonds of struggling countries and the establishment of the ESM, investors will see the European crisis in better control, which is certainly positive to global capital markets.

As the market expected and longed for, the Federal Open Market Committee announced the third round of quantitative easing (“QE3”) to help foster maximum employment.  The Fed will purchase additional agency mortgage-backed securities at a pace of $40 billion per month.  In addition to June’s accommodative program, the Fed will acquire longer-term securities by about $85 billion each month, which would help keep longer-term interest rates from rising and help support the mortgage market.  The committee also decided to extend current fed fund rates near the zero level from late 2014 to at least mid 2015. Read more

The ISM manufacturing index for August was weaker than expected, coming in at a slight decline to 49.6 versus an expected 50.0.  New orders, production and employment were all down slightly, while supplier deliveries and inventories helped.  Construction spending fell -0.9% in July, despite calls for a slight gain of a half-percent or so.  On the other hand, auto sales rose to an annual rate of 14.52 million units for August—up from 14.1 in July—so buying conditions here are improving.

The non-manufacturing ISM rose strongly from 52.6 in July to 53.7 in August, which was largely unexpected and above a forecast of no change.  The employment index rose notably, while the new orders and general business activity pieces were a bit weaker.  This is perhaps unsurprising, as our economy has shown more strength and general growth in service sectors than it has in manufacturing (a multi-decade trend). Read more

Consumer confidence fell in August unexpectedly down to 60.6, versus the consensus estimate of 65.9.  A deterioration in the ‘expectations’ component was the biggest reason for the drop, while the ‘present’ conditions and ‘employment’ measures were relatively flat.  As we know, sentiment measures can be quite fickle.

Conversely, University of Michigan consumer sentiment rose to a three-month high in August, from 72.3 to 74.3, and beating an expected figure of 73.6.  Current conditions scored highest and were sharply upward, while expectations for the more immediate future (6 months from now) fell a few points.

Consumer spending gained +0.4%, which was slightly below consensus by a tenth-of a percent or so and was the first gain in real spending for several months.  Personal income was up +0.3% for July, which was right on target with forecast. Read more