GDP Down, Unemployment Down, Housing Down, Durable Goods Down - Go Figure

By FX Empire Analyst - Barry Norman
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The government cut its most recent growth estimate yesterday  and fewer people signed contracts to buy homes reports showed yesterday, but President Obama got what he needs, lower unemployment numbers.

The U.S. durable goods orders for August, the unemployment claims report for the week ended September 22nd and the advance estimate of second quarter GDP were all released on Thursday.  While the jobless claims dropped more than forecast, the GDP and durable goods orders were weaker-than predicted. Pending housing sales also plummeted, which when viewed with the prior days decline in new home sales, worries markets.

US durable goods orders posted in August their biggest monthly drop since early 2009. The durables fell by 13.2% M/M, while a more limited decline by 5.0% M/M was expected and also the previous month’s figure was downwardly revised (from 4.2% M/M to 3.3% M/M). The breakdown shows that the plunge was due to a 101.8% M/M drop in orders for non-defense aircraft and also orders for vehicles and parts (-10.9% M/M) and defense aircraft (-8.1% M/M) dropped significantly during the month. Durable goods orders excluding transportation nevertheless surprised on the downside too, falling by 1.6% M/M, while the consensus was looking for a marginal increase by 0.2% M/M.

Weakness was wide-spread as orders for: machinery (-4.7% M/M), computers and electronics (-3.4% M/M), primary metals (-1.7% M/M) and fabricated metals (-0.4% M/M) all dropped in August. Orders for electrical equipment rose by 3.8% M/M during the month. Shipments of non-defense capital goods less aircraft, which is an important proxy for the GDP data, fell by 1.1% M/M, the second consecutive decline. The report is very weak, both in the headline figure and the details, while most had hoped that the core durables would have been somewhat stronger. The data suggest that the manufacturing sector will probably continue to struggle as uncertainty remains high due to the upcoming elections and fiscal cliff.

The number of Americans initially applying for unemployment aid last week dived to a two-month low, the US Labor Department reported Thursday, indicating the job market may have regained its lost momentum. The advance figure for seasonally adjusted initial claims for jobless benefits hit the lowest level since July at 359,000 in the week ending Sept. 22, a decrease of 26,000 from the previous week's revised figure. Meanwhile, the four-week moving average, which helps smooth out week-to-week volatility, decreased to 374,000, the first drop in six weeks.  Claims below 375,000 generally indicate a sustained drop in the unemployment rate. Economists say the figure brings hope for a labor market recovery.

The economy grew at a scant 1.3 percent annual rate in the April-June quarter. That was down from the 1.7 percent rate the government had previously estimated. But the downward revision was due largely to the Midwest drought, which cut farm production. Once the drought eases and crop yields rebound, U.S. farms should boost growth.


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