EconoFACTS

September 27, 2022 | 10:37

Good is Bad; but Bad is Good

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Nice trifecta of positive U.S. economic news today.... sort of. Kind of.

First it was the durable goods report, in which core orders and shipments were both up considerably in August. See Priscilla Thiagamoorthy's writeup.

Second, new home sales blew away expectations, surging 28.8% to 685,000 annualized units in August on the back of net upward revisions to the prior three months. That is the biggest one-month increase since June 2020 and the highest level since March. But the headline can swing wildly in the wind, and can be followed by an equally sizable decline (not always but often). That's ok. I'll take this jump. Although inventories were held to just a 0.4% increase, every region in the country saw sales pickup last month. But the housing market has felt the biggest impact from higher borrowing costs; so, although I'll gladly welcome an increase in sales, we know that the bigger picture shows slowing activity. (Homebuilder confidence is at 8-year lows, outside the pandemic.) Warning for the September and/or October sales report(s) .... we could see a headline hit from Hurricane Ian.

Besides, home prices have begun their descent. The S&P CoreLogic Case-Shiller Home Price Index for the country's 20 largest metropolitan areas fell 0.4% in July, the first decline in about a decade and the biggest since November 2011. One year ago, we were looking at monthly increases of 1½%. And here we are. Over half of the 20 metro areas saw their home values drop in July, particularly in San Francisco (-3.6%) and Seattle (-2.5%). Miami (+1.4%) and Charlotte (+0.8%) managed to hold on. From a year ago, the gains eased further ....were up 21.3% just a few months ago and are now up "only" 16.1%. And here we are. Similar story for the government's FHFA Home Price Index. That series fell 0.6% in July, and is up "only" 13.9% y/y. This is good news for buyers; but, not good news for sellers.

Finally, there was the Conference Board's consumer confidence index. It was up solidly for the second month in a row, with September's 4.4 pt increase above expected and at 108.0, was the highest since the spring (or April). Confidence about the here and now (aka the present situation) and the future (aka expectations) climbed for the second consecutive month. And why? Once again, we turn back to the labor market. More respondents said "Yes, j jobs are plentiful" while fewer said "Jobs are hard to get these days". So, the net 'jobs plentiful' component improved for the first time in a few months. Good news? Of course. But at the same time, it is not good news as the Federal Reserve wants to see the labor market cool. However, Chair Powell et al might be distracted by another key measure of inflation.... the 12 months inflation expectations component edged down for the third straight month, which is encouraging news for monetary policymakers. They just need more.

Bottom Line: Today's round of positive economic news was interspersed with some negatives. And, during normal times, while news of faster economic growth is good and news of slower economic growth is bad, we are not living in normal times. Good is bad; but bad is good... as far as Fed policy goes these days. Know what I mean?

Table 1 - United States — Consumer Confidence Index

(1985 = 100)

Source: BMO Economics, Haver Analytics