NAM: Monday Economic Report
New durable goods orders fell for the second time in the past three months, down 2.1 percent in April. Excluding transportation equipment, new durable goods orders were unchanged. The data suggest that growth in durable goods orders has flattened, essentially unchanged over the past 12 months.
In addition, new orders for core capital goods (or nondefense capital goods excluding aircraft)–a proxy for capital spending in the U.S. economy–decreased 0.9 percent in April, but rose 1.3 percent year-over-year. This also reflects slower growth, down from 4.0 percent year-over-year in January.
Meanwhile, the IHS Markit Flash U.S. Manufacturing PMI dropped from 52.6 in April to 50.6 in May, the weakest pace of growth since September 2009. Despite some slowing, manufacturers in the U.S. remained upbeat in their production outlook, even with some slippage in that measure. Input prices have also decelerated, with raw material costs expanding at the weakest pace since June 2017. The story was similar in the Kansas City Federal Reserve Bank’s district, which also reported a softer expansion in May for the second consecutive month.
Looking abroad, manufacturing activity in the Eurozone has now contracted for four straight months, led by weaknesses in Germany, which experienced sizable declines in orders, exports and output. In contrast, French manufacturers reported some stabilization in May.
The Federal Open Market Committee kept interest rates unchanged at its April 30 – May 1 meeting, saying that it would “be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.” In the minutes of that meeting, the committee felt that inflation remained “muted,” with core pricing pressures below the Federal Reserve’s stated goal of 2 percent. This frees the Federal Reserve to pursue a more dovish stance to monetary policy over the coming months. While the FOMC has hit the “pause button” on rate hikes for the time being, there is also increasing talk about a possible interest rate cut later this year if needed.
The average 30-year fixed rate mortgage was 4.06 percent last week, the lowest point in two months. More importantly, this remained well below the 4.94 percent average for the week of November 15, 2018 (which was a seven-year high). The deceleration in mortgage rates since then should help to increase affordability for prospective homebuyers. Yet, the housing market data have been mixed. New home sales declined 6.9 percent in April, but the news was mostly promising. March’s reading had been the best since October 2007, and even with the pullback in April, new home sales have jumped 7.0 percent over the past 12 months. In contrast,existing home sales disappointed once again, edging down 0.4 percent in April and declining 4.4 percent year-over-year. Nonetheless, the expectation is for improved conditions moving forward.