Durable goods orders fell 4.9% in August to reverse most of July's 6.1% gain. The sharp decline was led by a plunge in civilian aircraft orders. Orders for motor vehicles were also weak. Excluding the transportation sector durable goods orders fell 1.8%, still weak as demand for big ticket items was upset by financial market turmoil and labor market weakness in August. However, unfilled orders have been rising strongly; suggesting capital spending will increase this quarter.
The MBA mortgage applications index fell 2.8% to 654.2% for the week that ended September 21. The purchase index fell 7.3% on the week while refinance application increase 3.3%. The slight uptick in mortgage rates last week dampened purchase activity with many buyers possibly holding off until the Fed rate cuts pass through to longer term rates. Refinancing is holding up because of the high number of mortgagors encountering resets.
The Treasury's auction of $18 billion in 2-year notes was met with strong demand today. The notes received a high yield of 4.000% and garnered a 3.29 bid-to-cover ratio. Indirect bidders, which includes foreign central banks accounted for a strong 36% of the accepted bids. Treasuries reversed early losses after the strong auction results, to end little changed on the day. The 10-year note was up 1/32 to 100-31/32 to yield 4.62%.
Weak economic data today increased the chances of more fed rate cuts this year. Fed funds futures traders are pricing in an 86% chance for a quarter point rate cut in October and are pricing in a 64% chance of one in December. More data on tap this week will continue to shape the interest rate outlook. New home sales and the final print of Q2 GDP are due out Thursday and personal income, which includes a key inflation gauge, construction spending and consumer sentiment, will be out on Friday. The data will likely confirm housing's drag on economic growth and still subdued inflationary pressures.
LANDAMERICA VALUATION CORPORATION
925 North Point Parkway, Suite 400
Alpharetta, GA 30005