October’s durable goods report and September Case-Shiller home prices

it’s been a short week with no really important economic releases; the last two of the regional manufacturing surveys for November were released by the Dallas and Richmond Feds, there was the release of a purchasing managers index for the Chicago area, and there were several non-critical reports on housing, including pending home sales and the release of two home prices indexes, the Case-Shiller 10, 20 and National Indexes and the FHFA House Price Index…data for new home starts and completions for both September and October were originally rescheduled for November 26th, but the release of both was delayed again until December 18th, although the information on building permits was available on Tuesday and released then, showing a 6.2% increase in new building authorizations on a 15.3% jump in permits for apartment units…..as we’ve pointed out in the past, both of the Census releases on new home construction – both housing starts and new home sales – are collected by Census field agents who visit just a small sampling of about 1 in 50 building permit offices nationally, and then also conduct road canvasses in areas not covered by building permit regulations to come up with a monthly estimate of new construction and sales activity nationally which has a large margin of error, typically on the order of ±10% to ±20%…apparently the 16 day government shutdown affected the housing data collection for both months enough that the Census felt the margin of error with even a smaller sampling would result in such uncertainty as to render the results useless, so they are still attempting to gather enough data for a reasonably complete survey, which could not be completed by November 26…since the last release of housing starts data was on September 18th for August, that means this latest delay will mean that we’ll go a full 3 months without new data on new residential construction…

New Orders for Durable Goods Up 4.8% Year to Date

one regular release we usually take a look at is the October Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf), which is most often covered as just ‘new orders for durable goods‘, because new orders are thought to be a forward looking indicator…but as we’ve seen in the many previous times we’ve covered this report, the headline number rises and falls on the widely volatile swings of the big ticket orders for commercial aircraft, and even ex aircraft there are sectors which seem to defy normal seasonal adjustments…so even though seasonally adjusted new orders for manufactured durable goods decreased by $4.6 billion, or 2.0%, to $230.3 in October, the unfilled order book rose 0.3%, or $3.5 billion above September’s level to $1,045.4 billion, hardly indicative that manufacturers will have to pull back anytime soon…so it pays to take a look at the whole report and see what it implies for current production, output and GDP, rather than turn the coverage of it into an effort to read next year’s tea leaves…

October’s 2.0% seasonally adjusted drop in new orders for durable goods, which are manufactured items generally expected to last more than 3 years, followed a 4.1% increase in orders in September and a 0.5% increase in August…in the year to date, new orders have amounted to $2,274,148 million, a 4.8% increase over the same period 2012…precipitating the decrease in October, new orders for transport equipment were down 5.9% to $73,015 million; once again, that was because new orders for civilian aircraft fell 15.9% to $16,047 million and new orders for defense aircraft fell 20.0% to $3,998 million…the generally stabler new orders for motor vehicles and parts were up 1.7% to $46,602 million and are 10.2% ahead of the year ago pace…without transportation equipment, October new orders were at $157,237 million, down less than 0.1% from $157,322 in September…however, the important orders for non-defense capital goods, which are a barometer of business investment, were down 3.9% to $77,886 million in October, and even excluding the decrease in aircraft orders from that, the orders for the so-called core capital goods were still down 1.2% to $66,239…our FRED graph below shows the monthly change for total new orders for durable goods in red, the change in new orders for capital goods excluding defense in green, and the change in new orders for core capital goods in blue for each month since the beginning of 2012..

FRED Graph

seasonally adjusted shipments of durable goods were up $0.5 billion, or 0.2% to $233.2 billion in October; shipments represent the first look at what manufactured goods were actually sold & delivered and thus will contribute to fourth quarter GDP, whether included as personal consumption, investment, exports, government procurement or wholesaler’s inventories…in contrast to new orders, the strength here was in the transportation sector, where shipments increased $0.7 billion or 1.1% to $70,899 million; that increase, in turn, was driven by a 2.4% increase in shipments of non defense aircraft and parts to $12,277 million and a 1.7% increase is shipments of motor vehicles and parts to $46,785 million, while shipments of defense aircraft and parts fell 20.0% to $3,998 million…

seasonally adjusted shipments of durable goods other than transports were down 0.1%, from $162,555 million in September to $162,346 million in October, largely because of a 2.6% decline in shipments of computers and electronic products to $27,207 million; and it was computers in that sector where the weakness was centered, as shipments of computers and related gear fell 9.1% to $2,240 million…meanwhile, shipments of nondefense capital goods were statistically unchanged as they rose from $74,156 million in September to $74,192 million in October, although without aircraft, shipments of so-called core capital goods fell  0.2% to $65,608 million…however, except for the noted weakness in computers and electronic products, shipments of other durable goods improved over September, with October machinery shipments up 0.8% to $34,246 million, shipments of primary metals up 0.5% to $25,932 million, while shipments of fabricated metal products rose 0.4% to $29,047 million, and shipments of electrical equipment, appliances,and components rose 0.3% to $10,091 million…

durable goods inventories also increased modestly in October, up $1.2 billion to a seasonally adjusted $383.3 billion, which was 0.3% above September inventories and a new record for the series…inventories of transportation equipment made up most of the gain with a 0.9%, $1,053 million increase to $120,040 million, with a $901 million increase in commercial aircraft and parts to $66,065 accounting for most of that… excluding transportation equipment, inventories were just up 0.1% to $263,291 million. with inventories of communications equipment down by 1.9%, the largest percentage contraction in any sector…nondefense capital goods inventories rose 0.5% to $174,249 million, but mirroring the overall durable inventories, they only increased 0.1% ex-aircraft…

the value of unfilled orders for manufactured durable goods were at $1,045.4 billion in October, up $3.5 billion or 0.3% from September…again, unfilled orders for transportation equipment accounted for the majority of the increase, rising $42,116 million to $644,359 million in October, an increase of 0.3%. with unfilled orders for non-defense aircraft and parts again leading that increase with a 0.8% addition to $469,722 million…both  electrical equipment, appliances, and components at $22,589 million and producers of primary metals at $36,433 million saw their order books grow by 1.3% in October, while unfilled orders for motor vehicles and parts shrunk 1.1% to $16,439 million…notice that unfilled orders for all durable goods producers are roughly 4.5 times the value of shipments, while unfilled orders for non-defense aircraft are more than 38 times monthly shipments, meaning there’s more than a 3 year backlog at companies such as Boeing, vs an order backlog of around 4 months for the typical durable goods producer..

the FRED graph below shows the monthly percentage change in seasonally adjusted durable goods shipments in orange over the past two years, the monthly change in durable goods inventories in red, and the monthly change in unfilled orders for durable goods in blue, all fairly stable when contrasted with the widely watched monthly gyrations of new orders for durable goods shown here in green; as we pointed out earlier, despite the ups and downs, new orders for durable goods so far this year are still 4.8% above the pace of a year ago…

FRED Graph

Case-Shiller: September Homes Post Double Digit Annual Returns

  as we mentioned in opening, the S&P/Case-Shiller House Price Indexes for September (pdf), which is really a 3 month average of prices of repeat home sales over the three month period of July, August and September, was released on Tuesday of this week, and it continues to show the Fed’s ongoing success in reinflating the housing price bubble, as unadjusted prices for homes in both the 10 city index and the 20 city index rose 0.7% since the August report and 13.3% over the price level of last September’s report, the greatest year over year change since February 2006…in addition, by adjusting the monthly change for typical seasonal home price differences, they found the 10 city index to have increased 0.9% and the 20 city index to have increased 1.0% since August…meanwhile, their National Home Price Index, which is released quarterly, showed an increase of 3.2% from the second to the third quarter and an increase of 11.2% from the 3rd quarter of 2012…with their indexes based on prices from January 2000 equal to 100, the Composite 10 city index was at 180.03, the Composite 20 was at 165.66, and the national price index was at 150.92…of the 20 cities covered in the expanded index, Detroit showed the largest monthly increase in average home prices at 1.5%, although the index for that city remained at the lowest among the lot at 93.86…other cities seeing unadjusted price increases greater than 1% were Las Vegas, up 1.3% to 125.74, Phoenix, up 1.2% to 143.14, and Los Angeles up 1.1% to 212.83…only Charlotte saw home prices lower in the September report, with an index of 124.85 0.2% lower than it was in August..

it’s curious that the report continues to refer to changes in house prices as “returns”, as if a house were not a building to be lived in, but rather an investment vehicle which could be flipped as soon as a profit could be realized….thus they report that “twelve cities posted double-digit annual returns…with Las Vegas gaining 29.1% year-over-year followed by San Francisco at 25.7%, Los Angeles at 21.8% and San Diego at 20.9% and that “San Francisco and Los Angeles showed their highest annual returns since March 2001 and December 2005“…there’s not a mention that the price increases are shutting out most first time home buyers or of whether the average person could afford the average house…other cites seeing significantly large year over year home price increases included Atlanta, where prices rose 18.7% as their index rose to 113.99, Phoenix, where prices rose 18.6% and the index rose to 143.14, and Detroit, where prices rose 17.2% from levels that were already 19.9% below January 2000 levels…the year over year change in each of the 20 cities in the index can be seen on the bar graph below from Robert Oak at the Economic Populist; the scale for the year over year percentage price change is on the left..

caseshiller 1 year chg 9-13

Bill McBride at Calculated Risk used the index values for each of the 20 cities to create the next bar graph, which shows the maximum percentage price appreciation from January 2000 for homes in each city to its peak during the bubble years in red, and the low point for the average home price in each city after the crash in blue, also as a percentage change from January 2000…then the current percentage price change from the 2000 index benchmark is shown in orange, which will yield the index value for each city if the benchmark value of 100 is added to that percentage change…you might note that the orange bars for Dallas and Denver have already exceeded their bubble high prices levels shown by their red bars..

CaseShiller cities changes Sept 2013..

finally, we’ll include the pair of FRED graphs we created to show the historical track of home prices in each of the cities in the 20 city index the last time we covered this report; recall that each price index was set to equal 100 in January 2000, so that’s where each of these tracks starts; in the first FRED graph, we have the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in Orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dark blue, and Los Angeles with the highest price track on this chart in beet red (for a better view, click to enlarge)

FRED Graph

the second FRED graph shows the the historical price track of each of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dark blue and Washington DC in beet red; in addition, this second chart includes the track of the Case-Shiller Composite 20 shown as a heavier black line…again, click for a larger 1000 pixel version of this graph at the St Louis Fed web site where the lines are more distinguishable…at the FRED site you can also look below the graph and click on the line or lines of the cities you want a better view of, and to facilitate that, change the Line Width in the drop down box, and then click “Redraw Graph” to remake the graph so those cities stand out; refreshing the FRED page will return you to these originals, with the opportunity to further edit them…

FRED Graph

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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