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Notes to myself, possibly of interest to others.
-- Bill Northlich

Friday, November 26, 2010

Rosenberg Daily (11/24) - Last week's Jobless claims ... Good!

It was really hard to poke any holes through the October income and spending data. Personal income rose 0.5% MoM, better than expected. The details were solid as well as private sector wages jumped 0.6%, more than offsetting the drop in government transfers, namely unemployment insurance benefits, income dropping 4%. In fact, real income excluding government transfers was up a very respectable 0.4% on the month, the best showing since May.

It was little wonder that personal consumption expenditures (PCE) rose 0.4% on the month. And once adjusted for inflation, real PCE ticked up 0.3%, setting up the fourth quarter for a 2.5% QoQ annualized reading, better than the sub-2% we had penciled in. The increase in spending came despite the fact that consumers increased their savings rate from 5.6% to 5.7%.

But the initial jobless claims data were the real kicker, down 34k for the week ending November 20th — according to our research, every 10k decline in claims translates to 25k increase on payrolls. This move down to 407k (lowest since July 2008), if sustained in the next few weeks, is really key, in my view.

Well, I still have a worry list as long as my arm, but the incoming economic data are coming in solid for the most part as the year draws to a clos. It was really hard to poke any holes through the October income and spending data

If we have in fact broken into a new 400-425k range, this will be supportive of an acceleration in payrolls through year-end, at the least. Our models are pointing to a gain in nonfarm payrolls of 150-200k for November.

The very volatile durable goods new orders data were just that in October, with large drops in the headline and subcomponents. Total durable orders fell 3.3% MoM, missing expectations for a small increase. ‘Core’ orders (nondefense capital goods excluding aircraft) plunged 4.5% MoM. Core shipments were down 1.5% and together suggest tepid capex spending in Q4 — we likely won’t be seeing a repeat of the 16% QoQ last quarter.

First, it was housing starts falling 11.7% MoM last week, then two days ago, it was existing home sales, down 2.2%, and yesterday, we saw new home sales plunge 8.1% in October — a lot weaker than consensus expectations of a 1.6% increase. Not one of the 72 economists polled by Bloomberg expected such a huge falloff.

For the bulls, they are probably going to concentrate on the fact that the prior month was revised higher, now up 12.0% from 6.0% in the initial reading. Nonetheless, despite the big revision to September, new home sales are down in three of the past four months. The level of new home sales is back down to 283k units at an annual rate, which is tied for the third lowest level on record. The YoY rate is now at -28.5%.

Three out of the four regions saw declines on the month. Only the South managed to pull a rabbit out of the hat, with new home sales up 3.1% MoM in October, the second monthly increase in a row. The other regions all saw double-digit declines:
  • Northeast: -12.1% MoM, reversing most of the 17.9% increase in September
  • Midwest: -20.4% MoM, reversing nearly half of the 53.1% increase in September
  • West: -23.4% MoM, versus 3.1% in September
The inventory for new homes did fall in October, to 202k (lowest level since June 1968) from 203k, but this was not enough to keep months’ supply down, it rose to 8.6 months from 7.9 months in September.
The median number of months for sale from completion did go down as well, now at 8.3 months versus 8.8 months in September and down from the peak of 14.4 months back in March of this year.

As for new home prices, both median and average fell in October. Median sales prices are down 13.9% (largest single monthly decline on record — data back to 1963) to $194,900 (lowest price since October 2003). The YoY rate is at -9.4%, the fastest pace of deflation in median home prices since July 2009.

Average sales prices down 8% in October (largest monthly decline since June of this year) to $248,200 (lowest price since January 2009). The YoY rate continues to deflate for the second month in a row and deflating in four of the past five months, down 5.9%.

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