This week, the Census released statistics for durable goods which were unchanged; the ex-transportation number declined .4%. This figure continues to move sideways, which is its general trajectory for the last 2 ½ years:
Coming after a very large increase the preceding month, new home sales dropped 7.6% M/M and 20.6% Y/Y. Despite the sharp decline, the short-term uptrend remains intact:
On Friday, the BEA reported the latest income and spending statistics. Income continues to increase, this time by .2%. While its pace of growth was slow in January and February, it has since increased between .2%-.5% monthly. But the following chart shows that spending was weak last month:
Durable goods expenditures (in blue) dropped 1.3%. But this is after two months of increases; considering the items being purchased (longer lasting, usually requiring financing) a decrease is understandable. But nondurable good spending (in red), which has been decreasing since April, contracted for a second consecutive month. Service spending increased slightly.
The weekly bond market review looks at the final 2Q16 GDP revision.
Economic Conclusion: this week’s news was bearish. While durable goods orders haven’t decreased from their 2 ½ year trend, they also haven’t increased beyond their long-established range. The drop in new home sales is less concerning; it’s coming after a strong reading the previous month, implying this move could be nothing more than buyers stepping back after a more torrid pace. Most concerning is the PCE weakness: while service spending is solid, spending on things is weaker than desired.
Market Overview: It was a muted week for the averages: the SPYs gained .14% while the QQQs were up .33%. Several sectors posted strong gains: the XLEs rallied 4.39% thanks to OPECs announced production cut. The XLBs rose .93% in sympathy.
As for the SPYs, there is little to comment on:
The chart above shows prices are consolidating around the EMAs as traders wait for 3Q16 earnings season to start in earnest.