Economic data

Aug New Home sales, a measure of contract signings now 4 months removed from the home buying tax credit, was 7k units below expectations at 288k annualized but the prior month was revised up by 12k to 288k. The level is just a touch off the May level of 282k which was the lowest since at least 1963. The absolute # of homes for sale fell by 3k to 206k, the lowest since 1968 but because sales remain anemic, months supply fell only to 8.6 from 8.7 and vs the long term average of 6.2. The West saw a 54% m/o/m rise in sales to the highest since April but in July it had fallen 58% from April. The tax credit wrecks havoc on any concept of long term business planning as its no more than a drug high followed by bad withdrawal. The median price fell 1.2% y/o/y to $204,700, the cheapest since Dec 2003.

Aug Durable Goods headline was slightly below expectations and fell by 1.3% (led by 40.2% drop in non defense aircraft) but ex transport orders were stronger than forecasted with a 2% gain vs consensus of 1% and the July figure was revised higher by a full % pt. Non defense capital goods ex aircraft rose 4.1% and July was revised higher. Vehicle/parts orders fell by 4.4% but were more than offset by gains in computers/electronics, electrical equipment, machinery, primary and fabricated metals. Because shipments fell by 1.5% and inventories rose by .4%, the inventory to sales ratio rose to 1.58 from 1.55. Bottom line, the better than expected data is great to see and hopefully an extension of businesses using healthier balance sheets to invest but the trend still has been lumpy as we haven’t seen 3 months in a row of core cap ex gains since early ’07. A permanent extension of R&D tax expensing if passed will definitely help.

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