Weekly Transportation Update: New Home Sales Surprise with a Sharp Rebound

Key Takeaways

• Aircraft industry is a drag on durable goods orders.
• Core capital goods orders see a sharp gain.
• Sales of new homes surprise with a big jump.
• Mortgage rates rise sharply to 6.7%.
• Real spending on goods declines in August.
• Auto inventories continue to outpace sales.
• New jobless claims fall to lowest level since April.
• CDL driver hiring activity was strong in August.
• Diesel prices fall for the fourth straight week.
• Truck spot rates, volume ease in the latest week.
• Intermodal volume paints a troubling picture.
• Carload volumes mostly hold near recent average.
• CP-KCS Merger hearings begin.

Overview

New orders for durable manufactured goods dipped for the second straight month in August, but once again the blame lies with aircraft. In July, it had been a sharp drop in defense aircraft orders. In August, the culprit was civilian aircraft orders, which fell 18.5%. Total new orders for durable goods declined 0.2%, but orders excluding transportation equipment increased 0.2%.

Although a 0.2% increase is small, one benchmark indicator saw significantly stronger growth. New orders for core capital goods – non-defense capital goods excluding aircraft – rose 1.3%, which is the strongest m/m gain since January. Growth in core capital goods has been steady, having declined only once (in February) since September 2021. Even if we were to discount the gains for price inflation in key manufacturing commodities, capital goods orders clearly are a big strength for the economy.

Mortgage rates

Sales of new homes

With soaring mortgage rates and sales of existing homes falling for seven straight months, we would have expected more of the same in sales of new homes. However, sales of new single-family homes surprised in August with a 28.8% jump, which is the largest gain in a single month since June 2020. The increase followed declines in six of the seven prior months. Sales were the highest since March.
The factors behind August’s sharp rebound are unclear. It would not appear to be an issue of greater supply as completions of new homes fell 5.4% during the month and were up only 2.0% in July. Another possibility is buyer response to soaring mortgage rates. While rising interest rates generally would soften demand, buyers might fear that rates will only climb in the coming months.
Another possible explanation is price. After rising to an all-time high in July, the median sales price on new homes sold fell 6.3%. Sellers might have been spooked by a weakening housing market and discounted to move inventory. August’s sharp gain notably changed the inventory situation. The supply of new homes at current sales rates had swelled to 10.4 months, which was the largest inventory since April 2009. The supply of new homes in August fell to 8.1 months, which is higher than normal but the lowest since March.

Consumer spending

Adjusted for inflation, overall consumer spending is essentially holding firm. Real personal consumption expenditures (PCEs) ticked up 0.1% in August after declining 0.1% in July. The general trend toward stronger spending in services than in goods continued in August. Real spending on services was up 0.2% while real spending on goods declined by the same degree. Inflation is hitting services harder recently. Unadjusted services spending was up 0.8%. Due largely to sharply falling gasoline prices, nominal spending on goods fell more sharply than real spending, dropping 0.5%. Real spending on durable goods fell 0.4% for the first decline since May. Real spending on non-durable goods eased 0.1% after falling 0.7% in July.