Mixed Messages in Housing and Durable Goods Reports

When this report is on new home sales is combined with yesterday’s report on existing home sales, there is no indication the market will continue its torrid pace, but nothing to indicate substantial slowing either.  Existing home sales were brisk, but lower than the previous month and prices remained strong.  New homes showed record sales, but prices have fallen and there is a lot of regional variation.  This is noisy monthly data so caution is in order, but together the reports do not indicate a significant slowing in housing, though there are indications the market is leveling off.  However, as many observers have noted, the leveling of the market can indicate trouble ahead and in another report further clouding the issue, durable goods orders fell by 4.9% in July:

New Home Sales Rise for July, Fueled by West, By Vikas Bajaj, NY Times: …A day after a report showed slowing sales of existing homes in July, the government reported today that sales of new homes rose at a brisk pace in that month, driven by big increases in the West. But the new homes report also showed a big drop in prices, which contrasted with largely unchanged prices in the earlier report. … Sales of new homes rose 6.5 percent in July, as median prices fell 7.1 percent … The two sets of data were less divergent when they were measured against July 2004. New home sales rose 17 percent and median prices … fell 4 percent in July from the same period last year. By comparison, the existing home sales were up 4.7 percent from a year ago and prices were up 14.1 percent. … [H]ours before the new home sales data was released, the Commerce Department reported that orders for durable goods fell sharply, and unexpectedly, in July as demand for planes, defense equipment, computers and a range of other expensive items fell. … It was the biggest monthly drop in durable goods order since January 2004. The decline was broad based and showed up in virtually every industry classification … Economists said the true test of whether the economy is slowing or not will be provided by reports on jobs and wages expected out early next month…

Other reports:  Washington Post/AP, CNN Money, Bloomberg

For those looking for signs of what the Fed will do, I don’t think these reports will deter the Fed from the transparent measured path they are now on. There’s not enough weakness to prevent them from raising rates again, and there is not so much strength that they will feel compelled to raise rates by more than the 25 bps increments we have seen to this point. As always, more data on prices, employment, wages, and activity will be helpful in clearing up the picture.