Economic Review: Red Light, Green Light

Traffic LightWe had some very interesting economic reports released this morning. The data and its interpretation provide serious “grist for the mill.” On that note, let’s sharpen the stone and get to work.

1. Durable Goods: rose 1.9% versus a consensus expectation of a rise of .5%. Much of the increase was due to strong orders in the automotive and defense industries. Green light, green shoot, call it what you want. This report is much stronger than expected, so get back in there and BUY, BUY, BUY. Actually, hold on . . .

Do we expect to see growth in the automotive industry going forward? This industry is and will continue to be downsized. Do we think Barack is looking to grow our defense budget? Most assuredly not.

As much as market analysts, media mavens, and government officials are spinning this report in a very positive fashion, let’s dig deeper.

Last month’s Durable Goods Orders were revised lower from an initial reading of -.8% to -2.1%. Red light!! Additionally, given the volatile nature of orders in the transportation sector, economists look at Durable Goods excluding transportation. How did that do?

Wow!! Another green light. Durable Goods excluding transportation orders rose .8% versus an expectation of -.3%. Much stronger than expected. How about revisions to last month’s numbers? Uh-oh!! Last month this report reflected a decline of -.6% and this was revised to a -2.7%!!! Red light!!

So for those who think we’re making progress on this front, put it in the context of “take three steps back and two steps forward!!”

Let’s move right along.

2. Initial Jobless Claims: reported as a figure of 623k versus a consensus expectation of 628k. Less claims means an improving tone to the jobs market, right? Well, once again we’re playing the green light, red light game. Last week’s claims were revised from 631k to 636k, a worse point of departure. We’ll call this a push.

3. New Home Sales: against a consensus expectation of 360k units, this report came in weaker than expected at 352k. Red light. Additionally, the prior month’s report was revised lower from 356k units to 351k units. Another red light!!

4. Mortgage Delinquencies Data: released by the Mortgage Bankers Association rose to a record level of 9.12%. I had written a few weeks back on the importance of this data (The Most Critical Economic Statistic).

I am not surprised by this report. This data is the precursor to an increase in foreclosures and further pressure on our housing market. Red light.

5. Goldman Sachs recommends investors buy 10yr U.S. Treasury notes (hat tip TD) at a 3.7%. Is Goldman being an honest broker here or fronting for Uncle Sam? Yellow light.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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