The week's economic reports

The few economic reports released last week were all upbeat but, reporting on events just prior to the credit market tumult, they are all essentially meaningless - as of a few weeks ago, everything has changed.

Leading Economic Indicators: The Conference Board's index of leading economic indicators rose 0.4 percent in July after a decline of 0.3 percent in June. The increase was driven by lower initial claims for unemployment insurance, higher consumer confidence, and improved vendor performance while negative components included fewer building permits issued and higher yield spreads. Note that consumer sentiment had a significant reversal early in August and with the recent mortgage industry turmoil, unemployment claims are likely to increase in the weeks ahead so, the rebound in July may be reversed when the August data is reported next month.

New Home Sales: Sales of new homes exceeded expectations, increasing from an upwardly revised total of 846,000 in June to 870,000 in July. On a year-over-year basis, sales were down 10.2 percent, however, cancellations currently running at around 40 percent are not included in this data making the actual statistics far worse. Much of the overall reported gain came from a 22 percent jump in sales in the West, however, this was offset by a plunge of 24 percent in the Northeast while sales in the South and Midwest were about flat.

The inventory of unsold homes fell from a 7.7 month supply in June to a 7.5 month supply in July and the average time that a completed home sat on the market rose from 5.9 months to 6.1 months. The median price rose 3.9 percent to $239,500, up 0.6 percent from a year ago but down 8.8 percent from the early 2006 peak. The National Association of Home Builders reports that about three-quarters of builders are currently offering incentives, many of these worth tens of thousands of dollars, so it's important not to make too much of the apparent price stability lately - after accounting for increasingly lavish incentives, new home prices are down significantly.

This report comes before the recent credit market turmoil, so the next new home sales report will likely be worse, perhaps much worse, as a good deal of the aggressive builder financing evaporated along with other mortgage financing.

Durable Goods: Orders for durable goods rose sharply in July, up 5.9 percent after an upwardly revised gain of 1.9 percent in June. Excluding the volatile transportation category, new orders rose 1.3 percent in July after a 2.5 percent decline in June. Gains were spread across most categories led by orders for primary metals that increased 7.9 percent and computers and electronic products that rose 7.4 percent.

Orders for nondefense capital goods excluding aircraft, a closely watched indicator of spending for business equipment, rose 2.2 percent in July after declining 0.1 percent in June. It is likely that tighter credit conditions will have a dampening effect on business spending in the August report, however, the extent of the pull-back remains to be seen.

Summary: Since these few reports cover periods of time prior to the recent credit market melt-down, they don't offer any particular insight into the direction of the economy given the impact of recent developments. If anything, last week's economic reports indicate a small acceleration heading into the early August turmoil that will make month-to-month comparisons more difficult when they are reported in September.

The Week Ahead: The week ahead will be highlighted by the second of three readings for Gross Domestic Product for the second quarter on Thursday. Also scheduled for release are existing home sales on Monday, consumer confidence and the Fed meeting minutes on Tuesday, and four reports on Friday - personal income/spending, consumer sentiment, factory orders and the Chicago purchasing managers' index.