U.S. Durable Orders Rise 2.6%

Excluding the volatile transportation category, orders climbed 2%, the biggest jump since January 2013. Orders for nondefense capital goods excluding aircraft, a proxy for spending on equipment and software, rose 2.2%, the most since November. \it had declined 1.1% in February

U.S. New-Home Sales Plunge

Sales of new single-family homes fell 14.5% from February to a seasonally adjusted annual rate of 384,000, the Commerce Department said Wednesday. That was the lowest annual rate since last July, though the pace for January and February was revised higher.

The median price of a new home reached $290,000 last month, Commerce said, its highest level ever and a gain of 11.2% from February. The high during last decade’s housing boom was $262,600, in March 2007.

The number of houses for sale at the end of March was a seasonally adjusted 193,000. That was the highest figure since November 2010, the Commerce Department said.

Pipeline Issues Showing Up in New Home Sales

There’s more bad news in yesterday’s U.S. new home sales report than just the headline, which suggests a retreat from the gradual healing the housing market has seen. The spread between the levels of completed and unfinished new home sales, which in the wake of the crash had slowly widened to more normal levels, has begun narrowing again. Both components of total new home sales remain depressed, and their spread of around 70,000 units is no longer widening toward its longer-run pre-bubble average of 90,000 units. That suggests yesterday’s disappointing new home sales report is more than just a fluke.

Instead of a re-acceleration in activity this year, the housing market may be converging toward a new and lackluster normal, which would include a world of
conservative lending, damaged credit scores, subdued wage growth and delayed household formation. Unfinished new home sales have already slowed markedly since rates rose in mid-2013 and there is little in either recent housing releases or the outlook for rates to suggest that this activity will accelerate in the near-term.

If anything, the reappearance of a divergence between the trends in unfinished and completed new home sales suggests the housing market is headed for another
round of pipeline adjustments, albeit a more modest one than the 2008-2011 crash. That may be why the homebuilders’ sentiment index remains below 50, and why the SPDR S&P Homebuilders exchange-traded fund (XHB) and Bloomberg U.S. Home Builders Index have declined 7 percent and 15 percent, respectively, during the last six weeks. (BloombergBriefs)

AIA: Architecture Billings Index indicated contraction in March

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.
From AIA: Architecture Billings Index Mired in Slowdown

Following a modest two-month recovery in the level of demand for design services, the Architecture Billings Index (ABI) again turned negative last month. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the March ABI score was 48.8, down sharply from a mark of 50.7 in February. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.9, up from the reading of 56.8 the previous month.

 

CHINA’S DEFLATION PROBLEM…IS WORLD’S PROBLEM

Via FT Alphaville:

Albert Edwards, the SocGen strategist who first began advocating a big holding of long government bonds seventeen years ago, would like to bring to your attention news overlooked during the Easter break by giddy investors.

China’s Q1 GDP was highly significant, not for the headline slowdown in GDP growth to 7.4%, but because economy-wide inflation slumped further towards outright deflation. The continuing deterioration in Chinese economic data significantly increases the odds of global deflation being unleashed via an unavoidable Chinese devaluation. No wonder the markets prefer to look elsewhere!

China is about to join Japan in exporting its increasingly troublesome economy-wide deflation to the west. No wonder the US Treasury has turned aggressive on China’s renminbi policy again. This will turn ugly.

In chart form:

Headline real GDP data from China was good, but the nominal number slumped from 9.7 per cent in Q4 to 7.9 per cent year on year. Nominal and real are converging, which means the GDP deflator is heading towards zero.

Albert also points to Chinese producer price inflation which is much lower than consumer price inflation — in fact producer prices dropped in March for the 25th consecutive month.

Typically when producer prices are this weak, the CPI would also be declining marginally. That sort of outturn would have the markets in a real flap, with global bond yields significantly lower than they are now.

Had you focused on CPI in Japan, well, you would have missed the big picture.

The reason to care about Chinese deflation is that to avoid a credit crunch China will instead opt for a Reminbi devaluation that would trigger outright deflation in the West. Even more unconventional central bank measures will follow, and then, finally, the inflation demon will be released.

Ed Yardeni adds:

(…) [China’s] PPI inflation rate on a y/y basis has been negative for the past 26 months through March, indicating excess capacity is also weighing on manufacturing. The property construction market is also showing some signs of deflation recently.

So far, the government’s response hasn’t been sufficient to boost growth. That may be because the government is trying to reduce some of the excesses that led to the building of too many factories and too many ghost cities.

By the way, China’s crude oil demand has been flat at a record high over the past nine months through March. That doesn’t bode well for the country’s economic growth either. It actually suggests that growth may be slowing even faster than suggested by GDP and production indicators.

Spain’s growth fastest for six years Output grew by 0.4% in first quarter of 2014

(…) Spain’s central bank also highlighted that the country recorded its first year-on-year rise in quarterly GDP in more than two years. The annual increase stood at 0.5 per cent.

The Bank of Spain predicts that the economy will grow by 1.2 per cent this year and 1.7 per cent in 2015. (…)

Also on Thursday, the Spanish treasury again met keen investor interest for its latest debt auction, raising €5.6bn. Part of the auction was for a new 10-year benchmark bond that was sold at an average yield of 3.01 per cent – the lowest ever recorded for such a sale. The auctions of 3-year and 5-year bonds also produced new record low yields.