New Orders for Durable Goods Stalled Anew. The Census Bureau reported this morning (August 25th) that the regularly volatile, seasonally-adjusted new orders for durable goods rose by 0.3% (up by 1.3% before prior-period revisions) month-to-month in July 2010, after a revised 0.1% (previously 1.0%) decline in June. Unadjusted, year-to-year change in July new orders was a gain of 8.6%, somewhat less vigorous than the revised 17.2% (previously 15.9%) annual increase reported for June. 

The reported minimal gain in July orders was dampened by prior-period upward revisions, as indicated above, but it also encompassed a surge in airplane orders. Surging airplane orders is a long-term positive for the economy, where delivery time usually is stretched out over a number of years. July’s new orders for nondefense aircraft and parts rose by 75.9% for the month, against a 25.3% decline in June. Excluding transportation new orders, durable goods orders fell by 3.8% in July, after a 0.2% gain in June.

While recent benchmark revisions appear to have built in something of an upside sampling bias to the monthly numbers, the three most recent reports have shown flat-to-negative pressures on total new orders before consideration of the effects of inflation, which would make data appear weaker. 

Widely followed nondefense capital goods declined by 2.8%, seasonally-adjusted, for the month in July, after a revised 1.2% (previously 0.6%) increase in June. For July, the unadjusted year-to-year change in the series slowed to a gain of 9.7%, versus a revised June annual gain of 24.7% (previously reported at 18.8%).

Despite Reporting Issues, Collapsing Home Sales Appear Consistent with Re-Intensifying Economic Downturn. Allowing for some catch-up in poor-quality seasonal-adjustment factors that likely helped to inflate recent home sales reporting; allowing for the lingering effects of the April 30th expiration to the home-buyer tax credit; allowing for the worthlessness and usual statistical insignificance of near-term new home sales reporting; and considering the large prior-period revisions for both new and existing home sales that surfaced in July 2010; the decline in residential real estate activity is intensifying anew. Such is consistent with the decline in July housing starts (see Commentary No. 317), where the pattern of activity in residential real estate appears to have moved beyond the impact of short-lived stimulus, with renewed or re-intensifying economic contraction unfolding.

This morning’s (August 25th) reporting of July new home sales (counted based on contract signings, Census Bureau) showed a statistically insignificant monthly sales decline of 12.4% (down 16.4% net of prior-period revisions) +/- 12.6% (95% confidence interval). Such followed a downwardly revised gain of 12.1% in June (previously a 23.6% jump). The year-to-year decline in the new home sales series deepened in July 2010, down by 32.4% from July 2009. In June, the annual decline was a revised 20.5% (previously a 16.7% drop).     

Yesterday’s (August 24th) release of July existing home sales (counted based on actual closings, National Association of Realtors [NAR]) showed plunging sales that likely reflected some catch-up in poor-quality seasonal-adjustments in addition to a renewed collapse in residential real estate activity.

July sales tumbled by a seasonally-adjusted monthly 27.2% (down 28.7% before prior-period revisions), following a revised 7.1% (previously 5.1%) decline in June. On a year-to-year basis, sales were down by 25.5% in July versus a revised 7.6% (previously 9.8%) annual gain in June.

A questionable number in the July report was the estimated portion of existing home sales that were in foreclosure holding constant at 32% versus June. With other reporting showing foreclosures on the rise, and with forced or distressed sales not likely to have dropped in proportionate tandem with regular sales, one might expect that foreclosures would have accounted for a greater portion of the reported smaller universe of sales. 

Even as estimated, though, foreclosure activity remains a major distorting factor for home sales. As noted, the NAR percentage estimate should be jumping sharply as overall sales activity slows markedly. Separately, the Census Bureau acknowledges that a portion of new home sales also is from foreclosure activity but offers no estimates as to the scope of the issue. Some in the construction trade have difficulty competing with the pricing of foreclosed properties. Until the foreclosure problems get worked out in the system, monthly changes in these home sales numbers cannot be taken as meaningful positive indicators (when the numbers are positive) of underlying activity in homeowner real estate, as it relates to general economic activity. 

The following updated graphs reflect different measures of home sales activity since February 2009. The numbers, through July 2010, reflect the seasonally-adjusted level of monthly sales, rather than the annual rate usually published.

Week Ahead. Given the unfolding reality of a weaker economy (or re-intensifying downturn) and more serious inflation problems than generally are expected by the financial markets, risks to reporting will tend towards higher-than-expected inflation and weaker-than-expected economic reporting in the months ahead. Increasingly, such is being seen in economic reporting net of prior-period revisions.

Gross Domestic Product — GDP (Second-Quarter 2010, Second Estimate). Due for release on Friday, August 27th, the second estimate (first revision) to second-quarter 2010 annualized real GDP growth faces an unusually large downward revision, from initial reporting of 2.4% to 1.4%, per the consensus estimate at Briefing.com. Realistically, the quarter should have been flat-to-minus, and data revisions taking reported growth to such a state always remain a possibility, though not likely at present. 

That said, the downside impact of sharply weaker June trade data and some expectation of lowered inventory levels on official reporting may be overdone. A downside revision is a good bet, but I’d look for something closer to a revised growth level of 1.8%, given the propensities of the Bureau of Economic Analysis to offset inventory changes with adjustments to consumption.

Of interest will be initial reporting of second-quarter 2010 Gross Domestic Income (GDI) and Gross National Product (GNP), which are official alternate indicators of GDP activity.

Employment and Unemployment (August 2010). Due for release on Friday, September 3rd, both the estimates of the August payroll employment change and unemployment rate likely will disappoint market expectations. 

The Census Bureau reported today (August 25th) that its temporary and intermittent hires for the 2010 census were reduced by roughly 116,000 in August, based on the payroll-survey weeks. Consequently, the current consensus estimate (Briefing.com) of a total 120,000 jobs loss — which includes jobs gains other than census — likely will narrow to about a 90,000 jobs loss, in the week ahead. I look for an outright payroll contraction in August, net of census impact, with the total jobs loss likely to exceed 135,000. 

Briefing.com shows a consensus August headline U.3 unemployment rate of 9.6%, up from 9.5% in July. The jump in unemployment should be more severe, particularly when short-term (U.6) and long-term (SGS) discouraged workers are counted.