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It is difficult to get a true picture of how the manufacturing sector of the economy is faring, especially when the underlying details distort the story. Orders for durable goods, a measure of the demand for longer-lasting household and business goods, fell 4.5% in January, more than expected and a steep reversal of the 5.1% rise in December. While activity looked weak at first, the decline was due to a normalization of civilian aircraft orders. The Boeing Company received 250 orders in December (its largest monthly order in five years) compared to just 55 orders in January. In percentage terms, that is a 106% increase in December versus a 55% drop in January. When you remove the impact of volatile transportation, orders were up 0.7% in January, almost three times the -0.4% rate in December. Core capital goods orders, a proxy for business investment, rose 0.8% after falling 0.3% the month before.
Companies continue to make long-term capital investments despite higher interest rates and recession fears. The February ISM manufacturing survey, a more complete look at manufacturing activity, rose for the first time since August, even though it remains in contraction territory. New orders increased, supplier delivery times improved, inventories declined and the backlog of orders rose – all indications that manufacturing activity should continue, even if at a reduced pace.
Key Indicators this Week
Housing – The short-term relief in mortgage rates that came in January (rates fell over 30 basis points) was enough to push people to sign home purchase contracts. Pending home sales, counted when a home contract is signed but not yet closed, surged 8.1%, the biggest monthly increase since June 2020. Signings were up in all regions of the country, led by a 10% gain in the West. The increase in contract signings bodes well for higher home sales in February, but the gain may be short-lived. The average 30-year mortgage rate climbed to 6.65% this week, with the rate as high as 7% in some cases.
Confidence – Consumer confidence dipped in February for the second month in a row as growing concerns for the future outweighed the current optimism for the strong labor market. Overall confidence fell to 102.9, the lowest level in three months. Consumers continue to be anxious about rising prices and business conditions over the next six months, pushing the gauge of expectations to the lowest level since July. Ironically, consumers feel okay about the current economic conditions, with 52% of consumers saying jobs are “plentiful,” the highest rating in 10 months.
Rate Update
Treasury yields took another step higher this week. Stronger-than-expected economic data, falling weekly unemployment claims, higher labor costs and the realization that inflation may not be on a straight path downward reconfirmed the Fed’s strategy of “higher for longer.” The two-year Treasury yield stopped just shy of 5.0% and the 10-year Treasury yield breached the 4% hurdle. The fed funds futures market estimates funds increasing 90 basis points to 5.47% by September and falling back to 4.11% by January 2025. Next week’s monthly job report will be closely scrutinized for any sign of weakness in the labor market.
Note: The March Monthly Overview and Data Report will be available next Friday, March 10, due to the delayed release of the February job report.
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 purposed 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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