NEWS / Foreign Exchange

New and existing home sales in particular are likely to have fallen sharply in September

• Durable goods orders may have rebounded somewhat in September

• UMI??™s final October consumer sentiment could remain more or less unchanged

We expect existing home sales to have declined noticeably from 5.50m to about 5.00m in September. The main reason is that pending home sales, which are based on signed contracts for existing homes and have a forerun of 1 to 2 months to closed sales contracts, fell by a total of 16.5% in July and August. If the median home price decreases as much as in August, the annual rate will turn slightly negative again. Given the weak assessment in the latest Beige Book and more restrictive financing conditions, new home sales are also likely to have fallen again, from 795k to about 770k. Even if the median price were stable, the annual rate would remain negative, albeit only slightly. As the graph shows, the stock of homes for sale is extremely high at present, indicating that residential construction will remain weak in the next quarters.

Durable goods orders fell by 4.9% mom in August, particularly due to plunging aircraft orders. However, Boeing announced that its orders rebounded by about 75% mom in September. In contrast, automobile orders could have declined again, given softer vehicle sales and falling production levels. We thus expect durable goods orders to have recovered only partially, by about 1.8% mom in September. Due to the further decline in the ISM new orders component, we forecast that durable goods orders ex transportation will only have increased by 0.7% mom, after ??“1.8% in August.

Initial jobless claims in the week ending 13 October rose significantly by 28k to 337k. The low level of claims in the weeks seems to have been distorted and reflected that the hurricane season caused less disruptions than in the previous three years. Given that the weakness in the housing sector has intensified and is spilling over to other sectors, we expect jobless claims to have remained on a higher level of about 340k in the week ending 20 October.

The University of Michigan??™s (UMI) preliminary October consumer sentiment decreased from 83.4 to 82.0. Weaker employment conditions and the further deterioration in the housing market are obviously affecting consumers??™ mood more than the rebound in stock prices. But as gasoline prices fell slightly despite the rise in crude oil prices, we forecast that UMI??™s final October consumer sentiment will remain unchanged at 82.0.