As mentioned yesterday, I am travelling in Asia. This comes from Manila, the most densely populated city in the world with 1.7 million smiling people crowded inside 14.9 m2(38.6 km2).
U.S. Durable Goods Orders Fall 18.2% in August
But excluding the volatile transportation category, orders rose 0.7% in August after falling 0.5% the prior month. Factory shipments, excluding transportation equipment, ticked up 0.1% last month after rising 1.9% in July. (…)
Demand for new cars and trucks also fell in August, with orders for motor vehicles and auto parts declining 6.4% after rising 10% in July.
But in an encouraging sign for U.S. business spending, new orders for nondefense capital goods excluding aircraft, which are considered a leading indicator for business investment, rose 0.6% in August. Orders had declined 0.2% in July after surging 5.4% in June. (…)
Orders for nondefense capital goods, excluding aircraft, rose 7.5% in August from a year earlier, down from July’s 8.5% annual rise but up from a 5.6% year-over-year gain in June.
U.S. New-Home Sales Surge 18% Sales of newly built homes surged last month to the highest level since 2008, an early sign of higher consumer demand that could—if sustained—boost the broader housing market.
New-home sales climbed 18% in August from a month earlier to a seasonally adjusted annual rate of 504,000, the Commerce Department said Wednesday. That marked the biggest one-month jump since 1992 and the highest level of sales since May 2008, when the U.S. was in recession. (…)
The August results may have been elevated due to several special factors. Last month included more weekend days—prime buying periods—than July 2014 and August 2013. In addition, home sales fell off in the second half of last year as interest rates began to rise, meaning the year-earlier figures to which the latest results are compared are relatively low.
Brian Johnston, chief operating officer of Mattamy Homes Ltd., a closely held Canadian builder that operates in five U.S. states, described the new-home market as choppy in recent weeks. Mattamy’s August sales in the U.S. “picked up smartly” from year-earlier figures, but that momentum fizzled in the past two weeks, he said.
If you exclude the seasonal adjustments for the new-home sales report, the numbers still look good; August’s 41,000 actual deals were up from 31,000 a year ago. However, apart from the depths of the housing bust, that 41,000 level is August’s worst sales rate since 1982. That’s 32 years ago.
Still, new 1-Family housing demand jumped out of its 2-year range. That said new home sales data is very volatile and subject to large revisions. The Raymond James analyst is also not sold:
(…) we view such an unusually large jump in the data as potentially suspect, particularly in the context of other recent housing data points and commentary from key bellwethers like Lennar and KB Home. Most every other data point we’ve seen indicates that August was marginally softer than July, but not out of line with seasonal trends. While subject to potential revisions, the 18% August sales jump would represent the largest monthly jump in new home sales since January 1992. Within the data, we would highlight a suspicious 50% reported sales jump in the West region.
Defaults on Federal Student Loans Decline The Education Department reported a drop in Americans defaulting on their student loans, a development it attributed to an improving economy and a surge in enrollment in federal debt-forgiveness programs.
About one in seven borrowers who left college or graduate school in the fiscal year ended September 2011 had defaulted on their student loans within three years, the department said Wednesday. The official figure—13.7%—was down from the 14.7% rate for those who left school in fiscal 2010. (…)
Still, the government’s default measure vastly underestimates the problem. The government considers people in default if they have made no payments in 360 days. A broader measure by the New York Federal Reserve—which accounts for all Americans with student loans—shows that roughly one in four borrowers are at least 90 days behind on a payment. (…)
The Education Department said this year’s drop reflected the administration’s efforts over the past two years to enroll borrowers in so-called income-based repayment plans, which set borrowers’ payments at 10% of their discretionary income. The plans promise to forgive debt after a set period—10 years for those in nonprofit and government jobs, and 20 years for those in the private sector. (…)
Dollar Rally Whacks Euro
In European trading, the euro sank as low as $1.2697, its weakest since November 2012. Late Thursday in New York, the common currency was at $1.2747 from $1.2780 late Wednesday.
Just what Dr. Draghi wants.
Strong Dollar Won’t Weaken Earnings Just Yet Companies that sing the dollar blues in third-quarter earnings might be off tempo.
(…) But the dollar’s effect on third-quarter earnings should be muted. For starters, much of the appreciation came within the past month, so overseas sales booked earlier won’t have been so dinged by currency appreciation.
Indeed, on an average daily basis, the dollar is only about 1.5% higher in the third quarter than it was in the second. And even that slighter gain in the dollar won’t fully register on company results right away.
Many products, from high-fructose corn syrup to commercial airplanes, get priced in dollars. So while a rising dollar makes them more expensive against other currencies, which over time can lower demand, the effect isn’t as immediate as if the prices were quoted in the local currency. And where the prices of exported U.S. goods are quoted in the local currency, the immediate effect of a stronger dollar is often to push those prices higher. But demand doesn’t fall off by much at first, because it takes time for people to respond to higher prices and find substitutes.
Finally, many U.S. companies—particularly multinationals that produce the goods they sell abroad—use forward currency contracts and other instruments to hedge against dollar strength. These hedges won’t protect them against currency appreciation forever, but they do minimize the initial effects of a swing higher.
None of which is to say that when they report third-quarter earnings next month, there won’t be some companies that blame weak results on the dollar. But investors may not want to take such excuses at face value.