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Weekly Economic Commentary


Durable Goods Orders – Too Soon to Declare Soft 2012:Q1

February 28, 2012

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Orders of durable goods fell 4.0% in January following strong gains in November (+4.2%) and December (+3.2%). A decline in bookings of commercial aircraft (-19%) and machinery (-10.4%) brought down the headline. Defense orders moved up 17.7% to provide a partial offset. Excluding defense and aircraft, orders of capital goods dropped 4.5% in January. Orders of durable goods tend to decline in January, partly due to weakness in aircraft orders. That said, the year-to-year gain in orders of non-defense capital goods excluding aircraft shows a small acceleration in January, while shipments show a flat trend in the last three months (see Chart 1). Inventories of durable goods rose 0.7% in January after 0.3% increase in December. The net impact of inventories and shipments for the first quarter real GDP estimate is unclear and one month’s data are inadequate to change our current forecast of 2.4% increase in first quarter real GDP.

Chart 1 - 02 28 2012

Table 1 and 2 - 02 28 2012

Home Prices Continue to Maintain Downward Trend

The Case-Shiller Home Price Index (HPI) slipped 0.5% in December on a seasonally adjusted basis. The level of the index is the lowest since January 2003 (see Chart 2). Of the 20 metro areas, Phoenix (+1.5%), Miami (+0.2%), Tampa (+0.2%), Dallas (+0.2%), Portland (+0.1%), Denver (+0.1%), and Charlotte (+0.1%) recorded increases of varying sizes in December. Among the other metro areas that showed decreases in home prices, the largest declines were in Detroit (-3.5%), Atlanta (-1.3%) and Chicago (-1.1%), while San Francisco was the only metro area to show a nearly steady reading.

Chart 2 - 02 28 2012

On a comparative basis, the message from the National Association of Realtors, CoreLogic, Case-Shiller, and FHFA home price index is that declines in home prices have not stopped and the magnitude is not significantly smaller than a year ago for three of the four house price measures (see Chart 3). Thus, the pricing situation in the housing sector continues to remain problematic.

Chart 3 - 02 28 2012

Recent Uptick in U.S. Consumer Optimism is Related to Gains in Jobs

The Conference Board’s Consumer Confidence Index rose in February to 70.8 from 61.5 in January, with the Expectations Index (88.0 vs. 76.7 in January) making the large contribution compared with the improvement of the Present Situation Index (45.0 vs. 38.8. in January). The University of Michigan Consumer Sentiment Index also conveys an improvement in consumer outlook. The percentage of respondents indicating jobs are hard to get (38.7 vs. 43.3 in January) fell and the percent noting that jobs are plentiful (6.6 vs. 6.2 in January) moved up to make the make the net of these two indexes smaller in February compared with the prior month. The net of these two indexes has a positive correlation with the unemployment rate (see Chart 5); based on this relationship, the latest decline of this labor market measure (32.1 in February vs. 37.1 in January) points to a likely drop in the unemployment rate in February. The jobless rate in January was 8.3%, the February employment report will be published on March 9.

Chart 4 - 02 28 2012

Chart 5 - 02 28 2012











The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.