Soft U.S. economic data could weigh on Federal Reserve

By Staff, with files from The Associated Press | November 21, 2018 | Last updated on November 21, 2018
3 min read
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The Federal Reserve has raised short-term rates three times this year and is expected to raise them again in December and three more times next year. But the latest releases of economic data reveal some soft figures.

While U.S. home sales rose in October, breaking a six-month losing streak, sales are still down from a year ago, hurt by rising interest rates.

The National Association of Realtors said Wednesday that sales of existing homes climbed 1.4% to a seasonally adjusted annual rate of 5.22 million last month from 5.15 million in September. But the October sales were still down 5.1% from a year earlier, the largest annual drop since July 2014.

“No way is the housing market on solid ground at the moment,” says Lawrence Yun, the association’s chief economist.

He blamed a sharp increase in mortgage rates over the past year. Mortgage giant Freddie Mac reported Wednesday that the rate on 30-year, fixed-rate mortgages was 4.81%, up from 3.92% a year ago.

Given sluggishness in the U.S. housing market, Yun suggested that “maybe the Federal Reserve can take a little pause in their interest rate hikes.”

The median U.S. house price rose 3.8% from a year ago to US$255,400. The inventory of homes for sale was 1.85 million, down from September but up 2.8% from a year ago. Low inventories have pushed prices higher and kept some buyers out of the market. Rising inventories will likely curb price increases and allow “for much more manageable, less frenzied buying conditions,” Yun said.

Durable goods orders fall 4.4% in October

In other data released today, orders to U.S. factories for big-ticket manufactured goods fell by the largest amount in 15 months, with a key category that tracks business investment showing weakness for the third consecutive month.

The Commerce Department said Wednesday that orders for durable goods dropped 4.4% last month. The October drop was led by a huge decline in the volatile areas of commercial and military aircraft.

A category that serves as a proxy for business investment was flat in October after declines in both August and September. The slowdown has raised the spectre that a widening trade war between the United States and China is causing U.S. companies to grow more cautious about committing resources to expand and modernize their operations.

The overall economy, as measured by the gross domestic product, grew at a strong 3.5% annual rate in the July-September quarter, but this gain came despite the fact that business investment spending slowed sharply in the third quarter, to an annual rate of just 0.8%, the weakest showing in nearly two years, after an 8.7% surge in the second quarter.

In addition to the possible adverse effects from the U.S.-China trade war, economists said the investment slowdown could be an indication that the boost to investment spending stemming from the tax cut President Donald Trump pushed through Congress last year is beginning to wane.

The report on durable goods, items expected to last at least three years, showed that October’s drop was the biggest setback since a 7.4% fall in July 2017.

In emailed commentary, CIBC economist Katherine Judge said today’s durable goods data has been positive for fixed income and negative for the U.S. dollar.

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Staff, with files from The Associated Press

The Associated Press is an American not-for-profit news agency headquartered in New York City.