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   Brian Wesbury
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  New Orders For Durable Goods Boomed 22.6% in July
Posted Under: Data Watch • Durable Goods


Implications: Durable goods boomed 22.6% in July, the biggest increase on record going back to 1958. The entire gain in durable goods orders was due to the very volatile transportation sector, which rose 74.2% in July. In particular, civilian aircraft orders rose 318% as Boeing received 324 orders for new planes in July. Excluding transportation, new orders for durable goods declined 0.8% in July, but were revised up to a 3% gain in June (versus a prior estimate of 1.9%) and are up 6.6% versus a year ago. The best news today was that shipments of “core” capital goods, which exclude defense and aircraft – a good proxy for business equipment investment – rose 1.5% in July and June shipments were revised up to a 0.9% gain (versus a prior estimate of -0.3%). These shipments are now up 7.6% versus a year ago, a major acceleration from the 0.4% decline in the year ending in July 2013. Until recently, business investment had been unusually slow relative to other parts of the recovery, but it now looks like companies are finally updating their equipment and building out capacity more quickly. On the housing front; mixed news on home prices today. The FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.4% in June, and is up 5.2% from a year ago. However, the Case-Shiller index, which measures homes in 20 key metro areas around the country, declined 0.2% in June, with 13 of the 20 areas showing a decline, led by Minneapolis and Detroit. That’s the first overall decline since early 2012. Still, in the past year, the Case-Shiller index is up 8.1%, with gains led by Las Vegas, San Francisco, and Miami. Both the FHFA index and Case-Shiller show smaller price gains in the past twelve months than in the twelve months that ended in June 2013. We expect that trend to continue, with these measures generally moving up but showing smaller gains than in the recent years. In other news this morning, the Richmond Fed index, a measure of factory sentiment in the mid-Atlantic region, rose to +12 in August from +7 in July, signaling continued gains in industrial production in August.

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Posted on Tuesday, August 26, 2014 @ 10:22 AM • Post Link Share: 
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  Tapering Has Not Hurt The Economy
Posted Under: GDP • Government • Markets • Video • Fed Reserve • Stocks • Wesbury 101
Posted on Monday, August 25, 2014 @ 3:27 PM • Post Link Share: 
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  New Single-Family Home Sales Declined 2.4% in July
Posted Under: Data Watch • Home Sales • Housing

Implications: Another housing number, another Plow Horse report. New single-family home sales declined 2.4% in July, but this comes on the back of an upwardly revised June number. The recent slowdown in new home sales does not mean we are back in a housing recession; home construction remains in an upward trend and new homes sales are still up 12.3% from a year ago. Nonetheless, new home sales still remain at depressed levels and we believe there are a few key reasons for this. First, the homeownership rate remains depressed as a larger share of the population is deciding to rent rather than own. Second, buyers have shifted slightly from single-family homes, which are counted in the new home sales data, to multi-family homes (think condos in cities), which are not counted in the report. Third, financing is still more difficult than it has been in the past. The inventory of new homes rose 8,000 in July, but still remains very low as the chart to the right shows, and most of the inventory gains are for homes not started, instead of homes completed. Homebuilders still have plenty of room to increase both construction and inventories. On the pricing front, the median sales price for a new home fell 3.7% in July to $269,800, but this number is not seasonally-adjusted. Prices are still up 2.9% versus a year ago and we still expect a similar gain in the year ahead. Once again, the housing recovery remains intact, despite the fits and starts which are to be expected when the overall economy is a Plow Horse, not a Race Horse.

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Posted on Monday, August 25, 2014 @ 11:07 AM • Post Link Share: 
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  Money Won't Be Tight For A Long Time
Posted Under: Employment • Government • Monday Morning Outlook • Fed Reserve
World monetary policy leaders (including Fed Chair Janet Yellen and ECB President Mario Draghi) met, and spoke, in Jackson Hole, WY last week. It’s the equivalent of the Emmy Awards for central bankers.

But, what is most interesting about all of this is that the more central bankers talk, the less anyone understands them. Supposedly, all the speeches, minutes, transcripts and press conferences are making the Fed, and other central banks, more transparent. But, in the end, they are making everything more opaque.

The Fed, in particular, is becoming harder to understand. Instead of using the unemployment rate as an economic signal, Janet Yellen said the Fed is now using a 19-component “factor model” to measure the health of the labor market. If you really care about this – a Fed white paper describing the model, or something very close to what the Fed is using, can be found here.

The model shows the labor market has improved. But, this is what we already knew by looking at private payrolls, which have grown for 53 consecutive months. Nonfarm payrolls, which include government, are up by more than 200,000 per month for six months in a row – the first time that’s happened since 1997.

But, according to Janet Yellen, the improvement in labor markets is suspect and still far from assured. And this is the problem with using multiple components. There will always be some data that are strong and other data that can be viewed with suspicion.

More importantly, the Fed is assuming monetary policy is the right tool to “fix” the labor market. Some say the Fed is only doing what Milton Friedman suggested they do in his Nobel Prize winning analysis of the Great Depression.

But this is simply not true. What Milton Friedman said was that a contraction in the money supply during the 1930s caused the Great Depression. He said this contraction was a mistake and blamed the Fed for causing the Depression. But this is not the same as saying Friedman would have supported QE and zero percent interest rates.

Friedman focused on M2, and that measure of the money supply has not fallen since 1948. It certainly did not fall in 2007, 2008, 2009 or at any time since. So, using Milton Friedman’s ideas as support for what the Fed has done is misdirection.

So, it is impossible to blame money for our current problems, or the Panic of 2008 itself. The real reason the labor market (and overall GDP) is not preforming as well as it did in the 1980s and 1990s is that government spending, redistribution and regulation have become more burdensome. Like the 1970s, and exactly as in most of continental Europe, big government is a drag on growth, which monetary policy cannot overcome.

Evidence? Since Congress allowed “extended (99-week) unemployment benefits” to lapse in December, the median duration of unemployment has fallen from 17.1 weeks to 13.3 weeks – the fastest decline in history.

What does all this mean? The Fed, like it did in the 1970s, will continue to run policies that are looser than necessary. It will do this because it will try to fix under-utilized labor markets by using monetary policy. While the Fed will lift rates next year, it will do so very slowly and it will unwind QE slowly as well. In other words, don’t fret the Fed. Monetary policy is not going to get overly tight for a very long time.

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Posted on Monday, August 25, 2014 @ 9:49 AM • Post Link Share: 
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  Existing Home Sales Increased 2.4% in July
Posted Under: Data Watch • Home Sales • Housing

Implications: Housing keeps growing…Plow-Horse-like. Existing home sales grew 2.4% in July, rising to a 5.15 million annual rate, the best level since September 2013. But total sales are still 4.3% below the peak a year ago. After declining seven out of eight months late last year and early this year, existing home sales have now increased four months in a row. Why did housing slow between July 2013 and March 2014? No one knows for sure, there are more theories out there than analysts, but a lack of inventory was fingered by realtors themselves. The past few months’ reports suggest that’s changing. Inventories are up seven months in a row, including a 3.5% jump in July. They are 5.8% higher today than they were a year ago. More inventory should help spur sales in the months ahead. One key reason for growing inventories is that home prices continue to move higher (median prices for existing homes are up 4.9% from a year ago). In other words, recovering home prices are getting more potential sellers into the market, which will increase sales. Another encouraging sign of the housing market healing was that distressed homes (foreclosures and short sales) accounted for only 9% of July sales, down from 15% a year ago, and the first time in single digits since NAR started tracking distressed sales in October 2008. We remain convinced that the underlying trend for housing remains upward. In other news this morning, new claims for unemployment insurance declined 14,000 last week to 298,000. Continuing claims dropped 49,000 to 2.50 million. Plugging these figures into our payroll models suggests August gains of 208,000 nonfarm, with 193,000 in the private sector. These forecasts will change over the next couple of weeks as we get more data. On the manufacturing front, the Philadelphia Fed index, which measures manufacturing sentiment in that region, rose to 28 in August, easily beating the consensus and coming in at the highest reading since March 2011.

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Posted on Thursday, August 21, 2014 @ 1:09 PM • Post Link Share: 
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  Innovation Pushes Economy Forward
Posted Under: Bullish • GDP • Video • TV • Fox Business
Posted on Wednesday, August 20, 2014 @ 4:17 PM • Post Link Share: 
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  George Soros’ bearish bet
Posted Under: Bullish • Markets • Video • Stocks • TV • Fox Business
Posted on Wednesday, August 20, 2014 @ 4:09 PM • Post Link Share: 
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  Mideast tensions in focus on Wall Street
Posted Under: Markets • Video • Stocks • TV • Fox Business
Posted on Wednesday, August 20, 2014 @ 4:06 PM • Post Link Share: 
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  The Consumer Price Index Increased 0.1% in July
Posted Under: CPI • Data Watch • Inflation

Implications: Consumer prices continued to move higher in July, though only at the tepid 0.1% pace the consensus expected. Although consumer prices are up a moderate 2% from a year ago, the year-over-year number masks an acceleration. The CPI is up at a 2.5% annual rate in the past six months and up at a 2.8% rate in the past three months. Since the start of 2014, consumer prices are up 2.4% at an annual rate versus the 1.2% pace in first seven months of 2013. Owners’ equivalent rent (what homeowners would pay if they were renting their homes from soemone else) led the way in July, up 0.3%, accounting for most of the increase in the overall index. Owners’ equivalent rent, which makes up about ¼ of the overall CPI, is up 2.7% over the past 12 months and will be a key source of the acceleration in inflation in the year ahead, in large part fueled by the shift toward renting rather than owning. And while energy prices declined 0.3% in July, muting the rise in the overall CPI, we expect this measure to move higher in the months ahead, continuing the trend higher we have seen over the past twelve months. The worst news in today’s report was that “real” (inflation-adjusted) average hourly earnings remained flat in July and are unchanged in the past year. Plugging today’s CPI data into our models suggests the Fed’s preferred measure of inflation, the PCE deflator, probably increased 0.1% in July. If so, it would be up 1.6% from a year ago, barely below the Fed’s target of 2%. We expect to hit and cross the 2% target later this year, consistent with our view that the Fed starts raising short-term interest rates in the first half of 2015.

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Posted on Tuesday, August 19, 2014 @ 10:13 AM • Post Link Share: 
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  Housing Starts Surged 15.7% in July
Posted Under: Data Watch • Home Starts • Housing

Implications: Great news on home building. Housing starts boomed in July, soaring 15.7%, and were revised up substantially for June. The upward trend should continue. Building permits also soared in July, up 8.1%, as single-family and multi-family permits rose 0.9% and 21.5% respectively. Starts can be volatile from month to month, so to find the underlying trend we look at the 12-month moving average, which now stands at the highest level since October 2008. The total number of homes under construction, (started, but not yet finished) increased 2.9% in July and are up 22.8% versus a year ago. No wonder residential construction jobs are up 116,000 in the past year. Multi-family construction is taking the clear lead in the housing recovery. Single-family starts have been in a tight range for the past two years, while the trend in multi-family units has been up (although volatile). In the past year, 35% of all housing starts have been for multi-unit buildings, the most since the mid-1980s, when the last wave of Baby Boomers was leaving college. From a direct GDP perspective, the construction of multi-family homes adds less, per unit, to the economy than single-family homes. However, home building is still a positive for real GDP growth and we expect that trend to continue. Based on population growth and “scrappage,” housing starts will eventually rise to about 1.5 million units per year. In other recent housing news, the NAHB index, which measures confidence among home builders, rose two points to 55 in August, the best reading since January. Looks like a broad pick-up in both sales and foot traffic around the country.

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Posted on Tuesday, August 19, 2014 @ 9:47 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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