it’s been a fairly light week for new data, with just a few reports on housing and a few on manufacturing…one report that could be considered a snapshot of economic conditions nationally was the Monday release of the Chicago Fed National Activity Index (CFNAI) for March, a composite index of 85 different economic metrics grouped into four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories…the CFNAI, constructed to have an average value of zero such that a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend, decreased to +0.20 in March from +0.53 in February, while the February monthly index was revised to +0.53 from an initial estimate of +0.14, and the closely watched three-month moving average of the index increased to zero in March from –0.14 in February, its third consecutive nonpositive value…production-related indicators added +0.21 to the index in March, down from +0.54 in February, as industrial production rose 0.7% after rising 1.2 percent in February, and the increase in manufacturing output was cut from 1.4% to 0.5%…employment indicators added +0.14 to the index, up from +0.07 in February, as initial claims for unemployment comp decreased to 320,900 from 336,900 and non-farm payrolls rose 0.1%…subtracting from the index were the consumption and housing category, which came in at –0.13 in March after a –0.17 subtraction in February, as housing starts increased but building permits decreased, and the sales, orders, and inventories category of the index, which subtracted 0.02 in March after adding 0.08 in February…

March Existing Home Sales Flat; New Home Sales Fall 14.5%

there were the two March reports on home sales early in the week, for both new homes and those previously owned…on Tuesday, the National Association of Realtors (NAR) reported that existing home sales were essentially unchanged from February on a seasonally adjusted basis, with homes selling at a rate 7.5% below last year’s pace…354,000 transactions involving single-family homes, townhomes, condominiums and co-ops were completed in March, up from 282,000 in February, which when extrapolated to a seasonally adjusted annual rate works out to a 4.59 million pace in March, down from a 4.60 million rate in February and the 4.62 million annual sales rate registered in January, and also the lowest seasonally adjusted annual rate of home sales in 20 months…adjusted sales rose in both the Northeast and the Midwest while they fell in the South and West, reversing the regional sales changes of February…the median home selling price for all housing types was $198,500, up from $188,300 in February and $184,000 in March of last year, in price data that is not seasonally adjusted…the average sales price was $246,800, up from $236,600 in February and $233,100 a year ago, with the average price in the West at $332,900 nearly double the average $180,000 homes sold for in the Midwest….distressed home sales selling at a discount, such as foreclosures and short sales, fell to 14% of all sales in March from 16% in February and 23% a year earlier… 

the NAR also says that 17% of homes sold in March were purchased by investors, down from 21% in February and 19% in March a year ago…71% of those identified as investors paid cash, as did 33% of all home buyers, down from 35% all-cash transactions in February but up from 30% cash buyers a year earlier….while most US corporate and institutional investors have pulled back on buying homes, there have been reports of increased foreign buying of US properties…first time home buyers are still scarce; they accounted for just 30% of March sales, up from 28% in February but unchanged from March a year ago…Freddie Mac reports that the average rate for a conventional 30-year fixed-rate mortgage ticked up to 4.34% in March from 4.30% in February, and up from 3.57% a year ago…1.99 million homes remained on the market at the end of the month, a 5.2 month supply at the March sales pace…

on Wednesday the Census Bureau released New Home Sales for March, which we’ll remind you is the report that typically has the largest margin of error and is subject to the largest revisions of any census construction series….nonetheless, March’s report was free of the asterisks typical in Census construction reports that indicate they don’t have sufficient data to determine whether new home sales rose or fell for the month or over the preceding year, as they reported estimated  seasonally adjusted sales new single-family houses fell 14.5 percent (±12.9%) from the revised February rate and 13.3 percent (±9.9%) below the sales pace of a year earlier, which means that they are 90% confident that home sales in March were between 4.4% and 23.2% lower than last year… the median new home sales price was $290,000; while the average March sales price was $334,200…. based on sketchy reports from field agents, Census estimated that 36,000 homes sold in March, of which 12,000 were completed, 12,000 were being built, and 13,000 weren’t yet under construction… seasonally adjusting those estimates and extrapolating them out to an entire year, they figure 384,000 new homes would sell annually, which is how these sales are reported, and which is the metric shown monthly in the FRED graph below of the history of this series…note that the reported March new home sales estimate is the lowest since the dip in July of last year and at 384,000 annualized contrasts markedly with the 1,389,000 per year rate that new homes were selling at in July 2005….also note that you can track the seasonally adjusted annual rate of home sales monthly over the history of this series by dragging your cursor across the face of the interactive version of this graph

March 2014 new home sales

for manufacturing, we had the advance report on durable goods and two regional Fed surveys…the Richmond Fed, reporting on Tuesday for an area that includes the Virginias, Maryland, the Carolinas, and the District of Columbia, reported that the 5th District Manufacturing Composite rose 14 points in April, from a minus 7 to a plus 7, indicating modest growth had resumed after 2 months of contraction, led by a 19 point gain in their index for new orders, while every indicator except order backlog turned positive…then on Thursday, the Kansas City Fed, covering a region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported that Growth in Tenth District Manufacturing Activity Moderated Slightly in April, as their manufacturing composite index slipped to 7, down from 10 in March, on a scale, like all Fed manufacturing indexes, where positive numbers indicate growth…the region’s production index fell from 22 to 12, the new orders index fell from 13 to 9, while the employment index rose from 0 to 3 and the workweek index rose from 3 to 6…

New Orders for Durable Goods Up 2.6% in March; Unfilled Orders at a Record High

also on Thursday, the Census Bureau released the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for March (pdf) which like all “advance” reports, is based on preliminary data and which in this case will be revised as soon as next week when the “Full Report” on factory orders is released, which will also report on the same data for non-durable goods…nonetheless, it’s this advance report that’s widely watched despite its margin of error, mostly for the first look at new orders, but also for data on capital goods, an indicator that companies are investing in new equipment…in March, new orders for durable goods, which are manufactured items generally expected to last more than 3 years, increased by a seasonally adjusted $6.0 billion to $234.8 billion, 2.6% higher than February’s level, which itself was revised from a 2.2% gain to 2.1% as January orders were revised up 0.1%…as is usually the case where there’s a strong increase, volatile orders for transportation equipment were a major factor, as they rose $2.8 billion or 4.0% to $74.1 billion in March, which in turn was boosted by an 8.6% increase in orders for non-defense aircraft, as Boeing reported 163 new aircraft orders, compared to 74 in February…but excluding this sector, new orders still rose 2.0% in March…volatile orders for defense capital goods were also up by 21.6%, from $7,653 million in February to $9,308 million in March, and excluding defense new orders were up 1.8%…

except for defense aircraft, new orders for durable goods were up in every category in March…new orders for non-defense capital goods increased by $5.4 billion or 7.1% to $80.5 billion; excluding aircraft from that, orders for so called core capital goods, which are capital goods used in the production of goods or services, were up 2.2% to $69,063 million…other leaders included orders for electrical equipment, appliances and components, which rose 3.5% to $10,555 million, orders for computers and electronic products, which rose 5.7% to $22,433 million, and new orders for communication equipment, which rose 7.9% to $4,642 million…..the picture of our FRED bar graph below, which can also be viewed as an interactive with the data displayed, shows the monthly percentage change for total new orders for durable goods in red, the change in new orders for capital goods excluding defense in green, and the percentage change in new orders for core capital goods, which takes out the obviously volatile aircraft orders, in blue for each month since the beginning of 2012…

March 2014 durable goods

seasonally adjusted shipments of durable goods in March, which will be included in 1st quarter GDP as either private or government investment, personal consumption, or exports, also rose for a second consecutive month, increasing $2.5 billion or 1.1% to $236.6 billion, after a 1.0% increase in February…transportation equipment, also up two consecutive months, saw a $1.0 billion or 1.5% increase to $70.0 billion on a 5.2% increase in shipments of commercial aircraft; excluding transportation, shipments rose 0.9% to $166.5 billion…there was again strength across the board as no durable goods category saw shipments fall in March; shipments of non-defense capital goods rose 1.7% to $76,167 million, shipments of machinery were up 1.3% to $35,628 million, shipments of computers and electronics were up 1.6% to $28,981 million and shipments of electrical equipment and appliances rose 1.0% to $10,255 million…year to date, shipments of durable goods are running 3.2% ahead of last year, with only computers, communication equipment, and defense capital goods showing declines from a year earlier…

seasonally adjusted inventories of durable goods, which also add to GDP, were up by $1.9 billion or 0.5% to a new record at $394.1 billion…. transportation equipment inventories were again leading the growth, up $0.9 billion or 0.7% to $126.0 billion, but unlike new orders and shipments, it was inventories of motor vehicles and parts, up 1.1% to $26,480 million, that made the difference here…except for defense aircraft and parts, inventories were also up across the board, with every sector adding to stockpiles…but since inventories represent durable goods manufactured but not shipped and likely not sold, excessive inventories would eventually lead to a curtailment of production; with that in mind, the year over year increases of 14.8% in non-defense aircraft and parts inventories and the 12.1% increase in inventories of computers and related products might be problematic…

finally, we would suggest that unfilled orders for manufactured durable goods are a better measure of industry conditions than the widely watched new orders, which only represent one month’s typically volatile activity…in March, unfilled orders, which have increased 13 out of the last 14 months, rose again by $6.1 billion or 0.6% to a new record at $1,068.2 billion…unsurprisingly, the order book for commercial aircraft, which rose 0.8% in March, was the largest at $496,756 million, the equivalent of a 41.4 month backlog at the current shipment rate…but unfilled orders also rose for most categories except fabricated metal products, which fell 0.7% to $84,890 million, motor vehicles and parts, which were off 0.5% to $16,243 million and defense capital goods, which slipped 0.2% to $155,975 million…categories of durable goods seeing the largest increases in their order books were communications equipment, where unfilled orders rose 2.2% in March to $37,458 million, primary metals, where unfilled orders rose 1.3% in March to $36,998 million, and computers and electronic products, where the order book increased by 1.0% in March to $139,246 million…on a year over year basis, unfilled orders for durable goods have increased by 7.3%, with unfilled orders for non-defense capital goods up 13.0% to $648,754 million, led by the 14.9% increase in unfilled orders for commercial aircraft…the order book for core capital goods was 9.3% higher than a year earlier in March, while unfilled orders for communications gear led the increase, 19.5% higher than the same month last year….

a way to check on the health of this manufacturing sector is to compare inventories of durable goods to the level of their shipments or unfilled orders over time, which allows us to see if inventories are appropriate for the amount of orders coming in and goods being shipped out…that’s what our FRED graph below attempts to do; the red graph is a simple metric direct from FRED, showing the ratio of inventories to shipments of durable goods; that’s an indication of how long inventory stockpiles will last at the current sales pace, and it fell to 1.67 months in March from 1.68 months in October…the blue graph below is a similar ratio of unfilled orders to inventories; it is created by dividing seasonally adjusted Unfilled Orders for Durable Goods Industries by Total Inventories for Durable Goods Industries, with both expressed as monthly dollar amounts; what this shows is that in the early part of last decade, the dollar value of unfilled orders was less than twice that of inventories, and gradually grew to three times inventories heading into the recession, when both metrics shrunk…over the last year, that part of the graph we’re interested in, it shows that unfilled orders have been generally growing faster than inventories, as the ratio unfilled orders to inventories was unchanged at 2.71 in March…

March 2014 durable goods inventory ratios

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)