This was one of those weeks when the bad news literally kept coming. While there were a few bright spots, the general trend of this week’s economic stats was pretty damn negative. Let’s look at the what happened to see where we’re going.
Existing Home Sales: Sales Increase but prices drop and inventory increases.
Sales of previously owned homes in the U.S. unexpectedly rose in October for the first time in eight months as lower prices and borrowing costs brought more buyers into the market.
Compared with a year earlier, sales of existing homes were down 11.5 percent, the Realtors group said.
The median sales price of single-family homes and condominiums fell to $221,000 from a year earlier. The 3.5 percent decline from a year ago followed a 1.8 percent slide in September.
The number of all types of homes for sale rose 1.9 percent from September to 3.854 million. That represented a 7.4 months' supply, the highest since April 1993.
What’s bad about the above information is although prices dropped inventory increased. In addition, this is the highest level of inventory we have had in existing homes since 1993. And now we have a consumer who is heavily in debt. That does not bode well for the future of existing homes sales.
There was also the drop in new homes sales:
Sales of new homes fell 3.2% in October to a seasonally adjusted annual rate of 1.004 million, the Commerce Department estimated Wednesday.
New-home sales are now down 25.4% in the past year. Measured out over the first 10 months of 2006 compared with the same period in 2005, sales are down 17.9%.
Meanwhile, the number of new homes on the market dropped 0.7% to 558,000, marking the third straight decline. The inventory represents a 7-month supply at the current sales pace, up from 6.7 months in September; it peaked at 7.2 months in July.
The months available for sale inventory level increased to a very uncomfortably high level. As with existing homes, this should cause a great deal of concern.
Durable Goods Orders Fall
New orders for U.S.-made durable goods tumbled a larger-than-expected 8.3 percent in October on a big drop in civilian aircraft, but durable goods orders also fell when transportation was stripped from the total, a government report showed on Tuesday.
The biggest drop since July 2000 in orders for durable goods -- big-ticket items expected to last three years or longer -- was propelled by a 21.7 percent fall in transportation orders, the Commerce Department said.
But even excluding transportation orders, durables declined 1.7 percent as manufacturing, fabricated metal, and computers and electronics orders all slid.
They really should issue this report as a "with and without Boeing".
While this number jumps around a bit, this drop indicates that manufacturers – which are doing well up until now – may be experiencing a slowdown as well. Let’s add this information to the following two pieces of information. The first is from the Chicago Business Survey:
The Chicago Purchasing Managers report the Chicago Business Barometer turned the October stumble into a November fall, dropping to neutral. The continuous expansion, which began in April 2003, ended at 42 months.
- All major indexes declined;
- Prices Paid expansion slowed for the fifth month;
- Order Backlogs, Employment, and Supplier Deliveries retreated;
- Buying Policy: Lead-times for all three categories increased.
And let’s add this information from the Institute for Supply Management.
The manufacturing economy failed to grow in November as the PMI registered 49.5 percent, a decrease of 1.7 percentage points when compared to October's reading of 51.2 percent. This is the lowest reading since April 2003 (46.5 percent) when the PMI was last below the 50 percent level. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
So – durable goods orders fell. But this number is subject to wide fluctuations. However, two other measures of manufacturing activity showed the manufacturing expansion that began a few years ago have ended. Placing the durable goods orders in this light indicates we could be just starting an economic slowdown.
I should note that both the Chicago and ISM numbers have been near these levels before without a recession occurring. However, the timing of all three of these events – durable goods and manufacturing sentiment – is troubling.
Unemployment claims increased:
In the week ending Nov. 25, the advance figure for seasonally adjusted initial claims was 357,000, an increase of 34,000 from the previous week's revised figure of 323,000. The 4-week moving average was 325,000, an increase of 7,250 from the previous week's revised average of 317,750.
Let’s look at the specifics of this number, because that’s what causes concern:
STATES WITH AN INCREASE OF MORE THAN 1,000
State Change State Supplied Comment
IA +1,027 No comment.
LA +1,040 No comment.
NC +1,143 Layoffs in the construction, lumber/wood, furniture, fabricated metals, and transportation industries.
MD +1,201 No comment.
AZ +1,351 No comment.
CT +1,548 Layoffs in the construction industry, and agriculture.
WI +1,623 Layoffs in the construction, service, and manufacturing industries.
MN +2,126 Layoffs in the construction industry.
MO +2,175 Layoffs in the construction and trade industries.
WA +2,188 No comment.
TX +2,200 Layoffs in the utilities and manufacturing industries.
KY +2,437 Layoffs in the automobile and manufacturing industries.
OR +2,484 No comment.
AR +2,668 No comment.
FL +3,020 Layoffs in the construction, trade, service, and manufacturing industries, and agriculture.
OH +3,091 Layoffs in the construction industry.
IN +3,263 Layoffs in the automobile industry.
MI +3,296 Layoffs in the construction industry.
NJ +3,816 Layoffs in the construction, trade, service, and manufacturing industries.
PA +8,925 Layoffs in the construction, trade, and service industries.
IL +9,309 Layoffs in the construction, trade, service, and manufacturing industries.
CA +9,949 Layoffs in the construction and service industries, and agriculture.
Look at all of those construction lay-offs. This could be a one time event. However, the construction numbers released on Friday indicate they may not be.
Spending on U.S. construction projects dropped by 1.0% in October, as outlays on private residential construction matched a low hit in July of this year, the Commerce Department said Friday.
Private residential construction spending fell by 1.9% in October after dropping 1.4% in September, the latest evidence the U.S. housing market has pulled back sharply. Economists and analysts are debating whether the market has bottomed out.
The decline in overall construction spending was much bigger than the 0.3% drop expected by economists surveyed by MarketWatch.
This was the largest drop in construction spending in five years. In other words, the construction lay-offs mentioned above may be just the beginning.
Finally, consumer confidence dropped for the second straight month:
Confidence among U.S. consumers unexpectedly fell this month, posing a risk for spending as the holiday shopping season gets under way.
The Conference Board's index of sentiment dropped to 102.9 from a revised 105.1 in October, the New York-based group said today. The number of respondents who said they expect more jobs to become available declined.
Americans are no longer getting a lift from falling gasoline prices and gains in stocks, and the housing slump is making it harder to borrow against home equity. The slide in confidence casts doubt on forecasts that consumer spending will power a rebound from the slowest pace of economic growth in three years.
Housing is still in a slump. Manufacturing is slowing. Construction lay-offs increased and with the depressed condition of the housing market this may continue. And consumers are less confident. All in all, this was a terrible week for the economy.