Mortgage bond prices were flat for the week which kept rates in check. Retail sales, an indication of the strength of the consumer, fell 0.3%. Excluding automobiles, sales fell 0.1%. That data was much weaker than expected. Analysts looked for sales to rise 0.3% and ex-auto to rise 0.2%. Housing starts were 1,256K versus the expected 1,306K. The Philadelphia Fed survey, an indication of manufacturing activity in the all-important Mid-Atlantic region, printed at 5.6 versus the expected 6. A reading above zero indicates economic expansion. Industrial production fell 0.4% and capacity utilization stood at 77.5. That data was near expectations. Leading economic indicators fell 0.1% as expected. Mortgage interest rates finished the week near unchanged.
Durable Goods Orders
Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.
Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. Be cautious heading into the data.