Fed Chairman Ben Bernanke's testimony on the Economic Outlook before the Joint Economic Committee of Congress and the release of the minutes from the April 30-May 1 Federal Open Market Committee monetary policy meeting probably commanded more attention than anything else going on this week, and resulted in more than 3 dozen linked paragraphs included at the beginning of this week's globalglassonion....there's always a contingent of the blogosphere that follows every nuance of Fed-speak for clues about what the Fed might do, as if the Fed would do much meaningful for the majority of us...by keeping interest rates low, they may be encouraging companies to borrow as much and as fast as they can at record low rates -- even junks bonds are less than 5% -- but they cant make those companies put that cash to use; record amounts of unused cash still remain on corporate balance sheets, and companies arent going to deploy cash that with capacity utilization still well below historical averages...at any rate, what was widely seen as the punchline that Bernanke delivered Wednesday was "If we see continued improvement and we have confidence that that's going to be sustained, then we could in the next few meetings ... take a step down in our pace of purchases" which apparently cued the markets that the Fed might really one day take away the punchbowl, aka QE-4ever, & supposedly provoked a worldwide market selloff, including the worst day in european markets in 10 months, capped by a 7.3% one day plunge in the Japanese Nikkei Stock Index...but it was just a one day affair; markets recovered as some Fed presidents suggested that bond purchases might even move up; and the markets had been frothy anyway, the Nikkei had been up 60% since November in the face of aggressive fiscal and monetary stimulus in that country, but the incident does underscore how much the speculative markets have become dependent on a continuous stream of easy money from the central banks...
it was a fairly slow week for economic data releases, but the Commerce Dept did release the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for April (pdf) on Friday, which precedes the full factory orders report which will be released next week; this report is usually watched for the forward looking new orders for durable goods, which rose $7.2 billion or 3.3% to $222.6 billion in April; this followed a 5.9% decrease in March, a 6.4% increase in February, and a 6.4% decrease in January...the volatility in this report largely stems from unevenness in orders from the defense department and for big ticket airliners from Boeing, so the results are often quoted excluding one or both; without defense, new orders were up 2.1%; without transports, new orders were up just 1.3%, and if we exclude both transportation and defense orders, durable goods orders were down 0.5% for the month; new orders for transportation equipment were up $5.1 billion or 8.1% to $67.6 billion; $1.9 billion of that was orders for nondefense aircraft and parts...new orders for nondefense capital goods, such as equipment and machinery used in production, increased $2.5 billion or 3.3% to $76.1 billion over the month, and unfilled orders increased $4.4 billion or 0.8% to $577.3 billion, while new orders for defense capital goods increased $1.8 billion or 31.3%; new orders for nondefense capital goods excluding aircraft increased 1.2% in April, but capital good shipments less aircraft fell 1.5%...overall, unfilled orders for durable goods rose $2.7 billion or 0.3% to $996.2 billion; $1.0 billion of that was from the unfilled backlog for computers and electronics, which rose 0.8%; unfilled orders for communications equipment rose $380 million, or 1.2%...our adjacent FRED chart shows the track of the year over year changes in new orders for durable goods; as you can see, while the annual change remains positive, it has been trending less so since the easy YoY comparisons of 2010…
both major reports on home sales during April were also released this week...the National Association of Realtors (NAR) reported that sales of previously owned homes only rose a seasonally adjusted 0.6% in April because of tight credit & a shortage of homes on the market...at the rate homes were selling in April, NAR figures that 4.97 million homes would sell over a years time; this seasonally adjusted annual rate is 9.7% higher than the 4.53 million annual rate homes were selling at a year earlier; note that neither April's number or the seasonally adjusted annual rate says anything specific about the actual number of homes that sold in April or over the year; it's just the way the NAR obfuscates their data; they also say "buyer traffic" was 31% higher than a year ago, but since that increase of traffic didn't quite yield a 10% increase in sales, it's fair to say a lot of that buyer traffic could be characterized as "looker traffic"; at the end of April, 2.16 million existing homes remained available for sale; that was 11.9% more than at the end of March, and based on the April's sales rate, those would amount to a 5.2 month supply of homes, up from the 4.7 month inventory at the end of March, but still 13.6% below the unsold inventory of a year ago, which then represented a 6.6 month supply at last April's sales rate; homes were on the market for a median of 46 days in April, down from a median of 62 days in March and 83 days a year ago....the adjacent chart from Bill McBride shows the year over year change in homes on the market in blue, and the months of supply as given by the NAR for each corresponding month since 2002 in red; note this does not include foreclosed homes owned by the banks that are being held off the market or any other shadow inventory...the April median home sales price was 11.0% higher than last April at $192,800, the 14th consecutive YoY price increase, something NAR hasnt seen since the boom period from April 2005 to May 2006; the median sales price for single family homes was $193,300, while the median for condominiums was at $189,500...Freddie Mac reported the national average interest rate for a conventional 30 year fixed mortgage was at 3.45% in April, down from 3.57% in March and 3.91% a year earlier, yielding about a 5.8% difference in monthly payments (mortgage rate chart shown below)...distressed sales - foreclosures or short sales - accounted for 18% of April sales, down from 21% in March and 28% in April of 2012; NAR says foreclosures sold at 16% less than market value in April, while short sales were discounted 14%...the percentage of first time home buyers continues to fall; from 30% in March to 29% in April, down from 35% a year ago, and the percentage of all cash home buyers continues to rise, from 30% in March to 32% in April, and up from 29% a year ago...anecdotal reports indicate heavy hedge fund buying, crowding out local buyers; moreover, it appears some of the private equity buyers are attempting to turn a quick profit by launching initial public offerings on the stock market, leaving other suckers investors to absorb the risk...
the widely followed report on New Home Sales for April (pdf) was released by the Census Bureau on Thursday; the source data for these monthly estimates are collected on laptop computers by Census field representatives who visit a sample of building permit offices and select a sample of permits issued for new housing, hence they have a large margin of error and are subject to larger revisions than other census residential series; with that caveat, Census reports that April sales of new single family homes were at a seasonally adjusted annual rate of 454,000, which was "2.3 percent (±12.8%)* above the revised March rate of 444,000 and is 29.0 percent (±20.7%) above the April 2012 estimate of 352,000"; what that means is that if the estimated pace of new home sales in April were extrapolated throughout a year, Census is 90% confident that somewhere between 395,888 and 512,112 homes would be sold, and that April sales would be between 8.3% and 49.7% more than the estimated sales of a year ago...with this report, the reported March annual sales rate was revised up from 417,000 to 444,000, and February's given annual sales rate was revised up from 411,000 to 429,000; if we check table 3 in the release, we see that the annualized February sales number was extrapolated from 34,000 sales reported by census field reps, while March sales were reported at 42,000, and that preliminary April sales were estimated at 45,000, of which 15,000 were completed,14,000 were under construction, and 15,000 were not yet started...the median sales price of new homes sold in April was $271,600; up from the $250,700 median price of homes sold in March; the average sales price was $330,800, a 15.4% jump from the March average price of $286,700; these increases were mostly caused by a change in the mix of homes sold; 12,000 homes sold for under $200,000 in April, compared to 14,000 for under $200,000 in March; meanwhile approximately 4,000 homes sold for over $750,000 in April vs ~1,000 in March...a seasonally adjusted estimate of 156,000 new homes remained on the market at the end of April; this is a 4.1 month supply at the current annualized sales rate…included on the FRED graph on the left below is a monthly track of new homes sold since 2000 in blue, with the scale in thousands on the left; also shown is a monthly track of median sales prices in green, and a monthly track of average sales prices in red; the dollar scale for both is on the right margin...the FRED graph on the left shows the monthly track of the average interest rate on a conventional 30 year fixed rate mortgage since 1972 in blue, and the average interest rate on a 15 year fixed rate mortgage in red; obviously, continuously lower interest rates have contributed to mortgage affordability and hence higher home prices, but it's difficult to discern the influence of the Fed's buying of mortgage backed securities, which started in September 2012, on the downward trend, which seems to have begun in 2009 and continued unabated since (both graphs will enlarge somewhat if you click them)..
(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…)