Decline in consumer confidence, 'robust' durable goods orders, offer mixed view of economy

Tuesday's economic data again suggested strength in some areas and weakness in others, as a read of consumer confidence slipped, while durable goods orders gained more than expected, manufacturing rose, the services sector also improved, and home prices climbed.

The consumer confidence index dipped in October to 100.9 from 101.3 in September, ending a two-month streak of declines, The Conference Board reported Tuesday.

The present situation climbed to 104.6 from 98.9, while the expectations index dropped to 98.4 from 102.9.

Economists polled by IFR Markets expected the confidence index to rise to 102.5.

The index, which is down 28.2 points from its pre-pandemic average, “has failed to sustain gains in this recovery because of the early summer and fall spikes in COVID-19 cases, which is having a disproportionately negative impact on services consumption,” according to Roiana Reid, U.S. economist at Berenberg Capital Markets.

The rise in the present situation index combined with the drop in the expectations index, suggests consumer are more unsure about the future, given the rise in COVID-19 cases.

“Consumers grew more optimistic about current labor market conditions, but their assessment of current business conditions remained very depressed,” Reid said. “They increased their future employment and income expectations, but downgraded expectations for future stock market performance.”

Consumers are reacting to the spike in virus cases and high unemployment, said Scott Anderson, chief economist at Bank of the West. “Buying plans were mostly lower, suggesting consumers do not anticipate the economy gaining much momentum in the fourth quarter,” he said.

Durable goods
Durable goods orders rose 1.9% in September, after a downwardly revised 0.4% increase, originally reported as 0.5%, the Commerce Department said Tuesday.

Transportation equipment orders, which grew 4.1%, were a major factor in the rise in overall orders. Excluding transportation, orders grew 0.8% in the month.

Economists estimated orders would be up 0.5% and 0.4% excluding transportation orders.

Core capital goods, a harbinger of business investment plans, gained 1.0% in the month after a 2.1% climb the month before, and are at a six-year high, Reid said.

“Durable goods showed a strong increase in orders, led by the volatile aircraft and motor vehicles and parts sectors,” she added. "Still, core orders increased solidly, reflecting continued strong demand for manufactured goods, consistent with the optimism in regional and national manufacturing sentiment surveys. Durable goods shipments increased modestly, having already staged a V-shaped recovery.”

Case-Shiller home prices indices
Home prices spiked 5.7% year-over-year in August, after climbing at a 4.8% annual pace a month earlier, according to S&P CoreLogic Case-Shiller.

Economists estimated prices would gain 4.2% year-over-year.

Year-over-year, the 10-city composite gained 4.7%, up from 3.5% a month earlier, while the 20-city composite rose 5.2%, after a 4.1% increase a month earlier.

Month-over-month, the national index, not seasonally adjusted, gained 1.1% in August, as did the10-city composite and the 20-city composite.

Economists predicted a 0.5% rise month-over-month.

“Non-seasonally adjusted home prices are up 5.18% from a year ago based on this index — the largest advance in two years — as the residential housing market continues to be a bright spot in the economic recovery,” Anderson said.

Richmond Fed surveys
Service sector activity showed “signs of improvement” in October, according to the Federal Reserve Bank of Richmond service sector survey, released Tuesday.

The current revenues index increased to 19 from 6 and the demand index dropped to 8 from 11.

The local business conditions index also climbed, to 12 from 7, the services expenditures index narrowed to negative 2 from negative 7, capital expenditures rose to 4 from 1, while the number of employees index rebounded to positive 9 from negative 3.

Looking six months ahead, the expected service sector revenues index decreased to 19 from 21, services expenditures reversed to negative 4 from positive 9, capital expenditures climbed to 15 from 11, while the number of employees index doubled to 18 from 9, the wages index rose to 35 from 24, and the demand index fell to 12 from 21.

The current prices paid trends index fell to 4.82 from 5.50, while the prices received index sank to 1.91 from 3.55.

The expected price paid trends index decreased to 3.55 from 3.98, while the expected prices received index declined to 1.68 from 2.50.

Manufacturing activity in the district “strengthened” in the month, the Richmond Fed said, as the manufacturing index gained to 29 from 21 last month.

Shipments swelled to 30 from 13, volume of new orders rose to 32 from 27, local business conditions gained to 30 from 24 and capital expenditures dropped to 13 from 20.

Looking six months ahead, the future shipments index fell to 34 from 51, volume of new orders decreased to 24 from 45, local business slipped to 37 from 52 and capital expenditures index declined to 22 from 35.

Dallas Fed services survey
October Texas service sector activity “grew at a reduced pace,” according to the Federal Reserve Bank of Dallas on Tuesday.

The current general business activity index rose to 13.2 in October from 11.5 in September, while at the company level, the index fell to 7.8 from 9.7.

The outlook uncertainty index gained to 5.8 from zero the month before.

The revenue index slipped to 7.1 from 14.0, the employment index dropped to 0.6 from 2.7, and the part-time employment index fell to negative 1.6 from 3.7.

Looking six months ahead, the general business activity outlook index gained to 20.1 from 18.9, while the company outlook dropped to 17.6 from 20.8.

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