New Home Sales Rise In September, But...

The pace of new home sales in September rose nearly 6% vs. August and is up 27% vs. a year ago, the Census Bureau reports, offering more evidence that the housing market continues to improve. The volume of new sales is still far below the pre-Great Recession levels, but in the here and now it’s no trivial matter that residential real estate is on the mend. Housing, after all, is said to cast a long shadow on the economy through a variety of channels, and so every month of improvement brings a bit more confidence for thinking that the economy can continue to muddle forward.

The news that newly minted homes sold at a faster pace last month isn’t all that surprising after last week’s bullish update on housing starts and permits for September. Yesterday’s report on sales is more or less confirming what was already conspicuous: real estate made another solid step forward last month, strengthening a sector that suffered its worst collapse on record.


It’s clear that September was a solid month for housing generally, at least in relative terms. In fact, a broad review of economic and financial indicators shows that last month posted an encouraging performance too, as I discussed in last week’s update of The Capital Spectator Economic Trend Index (CS-ETI). The question is whether the ongoing deterioration in Europe's economy will have repercussions for the business cycle in the U.S. in the months ahead?

Yesterday's news that sentiment in the industry and trade sectors in Germany is still weakening certainly offers no encouragement for thinking positively. For the sixth straight month, companies in the Continent's biggest national economy "again expressed growing dissatisfaction with their current business situation," according to the IFO Institute, which yesterday released the October update of its widely watched business climate index. "The business outlook nevertheless remained unchanged at last month’s low level," although "the clouds over the German economy are darkening," the institute advised in a press release.


Yesterday also brought news of a surprisingly weak report on the UK's industrial sector via the Confederation of British Industry (CBI). Nonetheless, analysts are still expecting that Britain's double-dip recession will be declared over with tomorrow's release of third-quarter GDP.

Meanwhile, there's rising optimism that China's slowdown in growth is finally over, offering a potential bright spot for the global economy. As The Economist reported last week:

A number of economists concluded that China’s protracted slowdown had at last run its course. Their confidence was bolstered by monthly figures showing the economy gaining strength as the third quarter wore on. Exports grew by 9.9% in the year to September, for example, having grown by only 2.7% in August. September’s industrial production beat expectations narrowly; retail sales beat them comfortably.

But even an optimist has to admit that the numbers around the world are still mixed these days. The same can be said for the U.S., although the American economy demonstrated a fair amount of resilience in September. Most of last month's initial economic reports have been published and so the potential for negative surprises overall on last month's numbers are quickly receding. The last batch of September releases yet to come:

• Durable goods orders (Thursday, Oct 25)
• Personal Income and Spending (Monday, Oct 29)

Considering that the September updates released so far are generally encouraging, it's hardly a shock that analysts are expecting more of the same for durable goods and consumer income and spending. In addition, the scheduled release on Friday of the initial estimate of third-quarter GDP for the U.S. is expected to show modest improvement over Q2's meager 1.3% rise, according to Briefing.com. The relatively upbeat outlook on Q3 GDP has been noted in our GDP nowcasts over the past month, including the last week's update.

Nonetheless, no one's assuming too much at this point, and so it's touch and go with each new data point. It's a precarious round of growth in the U.S. (still), although there's still a case for thinking that a modest recovery will roll on. The statistical evidence, for good or ill, on October starts arriving next week with the ISM Manufacturing Index on November 1, followed by the employment report on November 2. Just in time for one more data blast before the November 6 election.