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Struggling Efforts

March 24, 2010 – 10:10 am

Durable goods orders, purchases of big ticket items, were up .5% last month which was the expectation by most pundits and that is the third month in a row. Excluding the volatile transportation and defense expenditures, mostly aircraft which are very expensive and erratic, sales were up 1.1% a sign that businesses are increasing their capital goods spending. Sales of durable goods are a leading economic indicator and these sales are a strong hint that the economy is going to continue to improve.

However, existing home sales out yesterday and new home sales reported this morning continue to explain why our economy is struggling without any job growth. For existing sales February’s report showed a fall of .6%, a little more than expected, and for new home sales the expectation was for a small increase, but that did not happen. Instead we had a 2.2% decline. Unlike durable goods sales, home sales are a lagging economic indicator.

It is obvious the biggest drag on our economy is the housing industry. The severe fall in prices might be attracting new buyers and investors but foreclosures keep the supply of homes at high levels. We have seen supply, expressed in the number of months of sales it will take to take the supply to zero, fall in recent months. But the pressure of continuing supply caused by high unemployment and the rising tide of option ARM mortgage delinquencies will continue well into the summer and beyond.

You have to conclude that the government’s efforts to forestall foreclosures and stimulate the housing market have failed.

Good Trading
Steve Peasley

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