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  4. Durable Goods Orders Disappoint – Market Update

With Halloween approaching, it was more treat than trick for traders and people who generally follow economic data last week, but durable goods orders did give us a bit of a horrifying site. It’s not quite enough to permanently haunt, but it’s worth sleeping with one eye open until next month, lest any other monsters come springing out from under the bed.

Let’s get into the tales the data has to tell, ghastly and otherwise.

Headline News

Existing Home Sales

Existing home sales were down 2.2% in September to come in at a seasonally-adjusted annualized rate of 5.38 million. It’s worth noting that home sales tend to vary month to month. Therefore, special emphasis is placed on looking at the 3-month rolling average, which is up 0.6% in September despite the monthly sales drop. Sales of existing homes are also up 3.9% since the same time a year ago for the best annual improvement since March 2017.

Price data also shows strong demand for homes. Prices are up 5.9% on the year after coming in at $272,100 in September. These prices are being driven by relatively low inventory. The current number of existing homes on the market would be sold out within 4.1 months if sales continued at the existing pace. For perspective, a market is considered relatively balanced between buyers and sellers when there are 6 months’ worth of supply. Overall supply was down 2.7% at 1.83 million.

Single-family home sales fell just a little bit, down 2.6% to 4.78 million. In contrast, condo sales were up 1.7% to settle at 600,000 in September.

MBA Mortgage Applications

According to the Mortgage Bankers Association, the average interest rate for a 30-year-fixed mortgage was up 10 basis points on the week to finish at 4.02%. This was enough to push overall applications down 11.9%.

The primary culprit was a week-over-week drop of 17% in refinance applications, but applications to purchase also fell 4%. Purchase applications are still up 12% on the year. Meanwhile, refinances make up 62.2% of overall activity in the mortgage application space.

FHFA House Price Index

Home prices were up 0.2% in August, according to the Federal Housing Finance Agency. These are up 4.6% on the year. The overall pace of appreciation was down 0.4% on an annual basis and represents the slowest pace of price growth since October 2014.

Breaking the data down regionally, home prices are going up at the quickest clip in the Mountain region where they’ve risen 6.5% on the year. On the other hand, the Mid-Atlantic finds itself on the other end of the price train, with only 3.9% growth since August of last year. It’ll be interesting to look at this in comparison with Case-Shiller data being released this coming week.

Durable Goods Orders

New orders of durable goods were down 1.1% in September. There was no great news here as it was down 0.3% even when excluding transportation, which includes aircraft orders that are typically volatile as well as auto manufacturing. Finally, core capital goods orders were down 0.5%. Core capital goods include orders unrelated to national defense that aren’t aircraft. Additionally, this category had a 0.6% monthly decline in August revisions, which doesn’t help things.

There was an 11.8% downturn in orders of commercial aircraft. The Boeing 737 Max issues have a lot to do with that story and have reared their ugly head all year. Moreover, motor vehicle orders were down 1.6% along with a 1.5% dip in shipments for the category. This is in large part thanks to the GM strike, which came to an end on Friday.

Other key categories seeing a drop included fabrications, which were down 1.5%. Orders of computers were also down 0.9%. Meanwhile, orders of machinery were up 0.2%, but following consecutive months of big drops. This was also the case for communications equipment orders.

Shipments in core capital goods were down 0.7% in September, the second such decline in the last 3 months. This isn’t a good sign for nonresidential fixed investment. There was no change in unfilled orders.

Jobless Claims

Initial jobless claims were down 6,000 last week to finish at 212,000. The 4-week average was down by 750 claims to 215,000.

Meanwhile, on the continuing claims end, these are down 1,000 to come in at 1.682 million. Finally, the 4-week average of continuing claims was up 6,500, settling at about 1.677 million.

New Home Sales

New homes sales fell 5,000 to come in at a seasonally-adjusted annualized rate of 701,000, besting consensus estimates of analysts. This 3-month average of new home sales is at 691,000. We’re back up to level not seen since before the housing market crash.

It’s not all chocolate and cherries. They all seem to be being boosted by price discount. Prices fell 7.9% in September and have gone down 8.8% on the year at a median of $299,400. Supply in the market is at 5.5 months given the current rate of sales. On a regional basis, sales are steadily growing across the country, although analysts would like to see sales be a bit steadier in the West.

Consumer Sentiment

In the final reading of October, consumer sentiment fell 0.5 points to 95.5. This is compared to 93.2% in the last October reading.

On the plus side, the current conditions component of consumer sentiment was up almost five points in comparison to September at 113.2. Meanwhile, expectations for the future was up about a point at 84.2.

In order of importance to consumers, the key issues coming up in the survey were the negative effects of trade tariffs. The GM strike and possibility of presidential impeachment were also mentioned, but these were more remote concerns.

Mortgage Rates

Mortgage rates were slightly higher last week. Freddie Mac blames this on market volatility surrounding the trade situation with the U.S. and China and the market trying to strike the proper balance. One thing’s for sure, rates are still incredibly low. If you’re in the market, it’s a great time to lock your rate.

The average rate on a 30-year fixed mortgage with 0.5 points paid in fees was up six basis points to 3.75%. This is down from 4.76% a year ago.

Meanwhile, looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.5 points was up a few basis points on the week to settle at 3.18%. This has fallen from 4.29% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) rose five basis points to 3.4% with 0.3 points paid. This is down from 4.14% at the same time last year.

Stock Market

The stock market rose Friday, with the S&P 500 near record highs on positive news in the trade negotiations with China and mixed earnings reports. Starting with ongoing trade negotiations, the top U.S. Trade Representative Robert Lighthizer said that the final details are being worked out on phase one of the deal with the Chinese.

There were a slew of earnings reports this week including Microsoft, Tesla, 3M and Twitter. Amazon was the big market moving report that came out on Friday. Earnings came in lower than expected and disappointing forward guidance was issued for the holiday season. However, that doesn’t necessarily mean the company expects consumers to be spending less during the big shopping season. What many people don’t realize is that Amazon makes the majority of its money not from its e-commerce operations but from its web services division, which has grown to serve as a crucial backbone for much of the internet by providing server space. This market is very competitive and Amazon reported slashing its operating margin.

The Dow Jones Industrial Average was up 152.53 points Friday to close at 26,958.06, up 0.7% for the week. Meanwhile, the S&P 500 finished at 3,022.55 points, up 12.26 points on the day and 1.22% for the week. Finally, the Nasdaq was up 1.9% week-to-week after finishing up 57.32 points Friday to close at 8,243.12.

The Week Ahead

Monday, October 28

International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.

Tuesday, October 29

S&P Case-Shiller HPI (9:00 a.m. ET) – The S&P Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S.

Consumer Confidence (10:00 a.m. ET) – The Conference Board surveys consumers on their feelings about current and future business and employment conditions as well as their future spending plans.

Pending Home Sales Index (10:00 a.m. ET) – The National Association of REALTORS® developed the Pending Home Sales Index as a leading indicator of housing activity. Specifically, it’s a leading indicator of existing home sales – not new home sales.

Wednesday, October 30

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Gross Domestic Product (GDP) (8:30 a.m. ET) – This release measures the monetary value of all final goods and services produced within the U.S. This report is released on a monthly basis with estimates on the growth in the previous quarter.

Thursday, October 31

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

Personal Income and Outlays (8:30 a.m. ET) – This is a measurement of how much consumers are taking in as well as their corresponding spending. This also gives insight into how much is being saved.

Friday, November 1

ISM Manufacturing Index (10:00 a.m. ET) – This index measures the general direction of manufacturing within the U.S. The qualitative survey of purchasing managers looks at production, new orders, order backlogs, inventories and supplier deliveries, among other factors.

Employment Situation (8:30 a.m. ET) – The employment situation report measures unemployment in the labor force as well as the sentiments of workers about the job market.

There are a lot of economic reports out this coming week. Among the keys we’ll be looking at include manufacturing and jobs reports as well as GDP for a measurement of the overall growth of the economy. Hopefully none of this spooks investors about the future.

If this content isn’t lifting otherwise heavy eyelids on a Monday afternoon, we get it. If you subscribe to the Zing Blog below, we’ve got plenty of home, money and lifestyle content to share with you. In honor of Halloween, nothing gives the body a shot of adrenaline like a good scare. Check out this post on the 10 spookiest haunted houses for sale. Have a terrifyingly terrific week!

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