See this week's numbersFriday, September 30, 2016

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Could a decline be good for housing?

Sales of new homes fell 7.6 percent in August to an annualized pace of 609,000. The slowdown came after sales reached the highest pace in July since 2007. While the August pace was considerably slower, the annualized pace of purchases for 2016 remains well above the 501,000 homes sold in 2015. Sales are up 20.7 percent from a year ago and are 6.5 percent higher in the first two months of the 3rd quarter than the average in the 2nd quarter. Even as sales declined in August, the builder backlog of homes sold, but not started, increased to a nine-year high. This bodes well for construction activity in the future. The median price of a new home slipped 5.4 percent to $284,000. The drop in the price may reflect a needed shift toward builders' greater involvement with entry-level homes. The national home price index, measured by S&P CoreLogix Case-Shiller, changed little in July. Prices rose 5.1 percent from July 2015.

Other Key Indicators this Week:

GDP – Third time’s a charm, at least for 2nd quarter GDP. The final revision for growth in the second quarter came in at 1.4 percent versus the estimated 1.1 percent. The added strength came from a greater amount of exports and less deterioration in business investment than previously estimated. Business investment, including structures and equipment, increased 1.0 percent versus a decline of 0.9 percent. Consumer spending remains the leading strength in overall economic growth, despite being revised lower 0.1 percent to 4.3 percent.

Durable Goods Orders – Orders for goods meant to last at least three years were unchanged in August. When you subtract the volatile transportation component, orders declined 0.4 percent. The report reflected a big discrepancy between orders and shipments, which can have a large impact on GDP and future manufacturing activity. Orders for capital goods (non-military aircraft) rose 0.6 percent. However, shipments of capital goods fell 0.4 percent, the fourth monthly decline in a row. The series of declines in shipments suggests that business investments continue to be weak. Shipments are down 5.5 percent in the 3rd quarter so far, compared to a 2.2 percent decline in the 2nd quarter.

Spending and Incomes – The pace of consumer spending was flat in August, while July’s pace improved to 0.4 percent from 0.3 percent. Durable goods expenditures declined sharply, falling 1.3 percent from the previous gain of 2.1 percent. Spending on services eked out a modest gain of 0.3 percent, but not enough to offset the weakness in auto and retail sales. The sluggish pace of income growth may be holding down spending. Incomes increased 0.2 percent in August, half the pace of July. On a year-over-year basis, the rate of income growth has decreased to 3.0 percent in the 3rd quarter from 3.2 percent in the 2nd quarter. The savings rate increased to 5.7 percent. The PCE core year-over-year rate, a key measure of inflation used by the Federal Reserve, increased to 1.7 percent, drawing near the Fed’s target of 2.0 percent.

Strategically for Credit Unions:

The state of interest rates remains in limbo. Loan rates are still at near historic low levels, which should keep loan demand at least steady for the remainder of the year. The Treasury market may be waiting until the Presidential elections are over before making a move in either direction. Keep in mind interest rates, including loan rates, are lower today than they were a year ago, even after a rate increase 10 months ago.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.

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