MARKET UPDATE: DURABLE GOODS ORDERS, CONSUMER CONFIDENCE, PERSONAL CONSUMPTION INDEX (PCE)

What We Are Watching This Week

• ISM Manufacturing and Services 
• Job Openings 
• ADP Employment  
• US Employment Report 

Highlights From Last Week

• Durable Goods Orders 
• Consumer Confidence 
• Personal Consumption index (PCE) 

Major stock indexes ended mixed in a week of light trading ahead of the holiday weekend. Trading volumes were notably low, with Monday seeing the fewest shares traded this year, excluding early closes. The Nasdaq Composite, which is heavy in technology stocks, performed the worst, partly due to a nearly 10% drop in NVIDIA’s stock, wiping out about $300 billion in value at its lowest point on Thursday. In contrast, value stocks outperformed growth stocks by the widest margin since late July. Markets were set to close the following Monday for the Labor Day holiday. 

Canada’s main stock index declined on Friday, as investors reacted positively to favorable U.S. inflation and domestic GDP data, but significant losses in the energy sector weighed down overall gains. The Canadian dollar slipped by 0.05 cents to 74.09 cents U.S. According to Statistics Canada, the gross domestic product (GDP) grew by 0.5% in the second quarter, following a 0.4% increase in the first quarter. However, GDP per capita declined by 0.1% in the second quarter, marking the fifth consecutive quarterly decline. 

The pan-European STOXX Europe 600 Index rose 1.34% to a record high, extending its rally for a fourth consecutive week. This gain was supported by sharply slower inflation, which bolstered expectations for the European Central Bank (ECB) to cut interest rates in September. Among major European markets, Germany’s DAX hit a new peak with a 1.47% increase, Italy’s FTSE MIB rose 2.15%, France’s CAC 40 Index gained 0.71%, and the U.K.’s FTSE 100 Index climbed 0.59%. In the eurozone, annual inflation fell to 2.2% in August from 2.6% in July, the lowest in three years and just above the ECB’s 2% target. Core inflation slightly decreased to 2.8%, but services inflation, closely monitored by policymakers, increased to 4.2%. Despite declining headline inflation, some ECB policymakers remained cautious about cutting rates. They emphasized the need for continued supportive data before easing monetary policy, citing persistent underlying inflation pressures. 

In July, new orders for key U.S.-manufactured capital goods unexpectedly fell, and data for June was revised lower, signaling a potential slowdown in business equipment spending. The Commerce Department’s report suggested that the manufacturing sector remains sluggish amid higher interest rates. While overall durable goods orders rose sharply, this was primarily due to increased aircraft orders. Core capital goods orders, excluding aircraft, fell by 0.1% in July after a downward revision to a 0.5% increase in June. This was weaker than economists’ expectations of no change. Machinery orders were flat, while orders for computers, electronics, electrical equipment, and primary metals declined. In contrast, fabricated metal products saw a slight rise. Shipments of core capital goods, which contribute to GDP calculations, fell 0.4% after being unchanged in June. Despite robust equipment investment in the second quarter, economists warn of a possible contraction in business equipment spending, as manufacturing surveys indicate weak orders. Economists forecast a modest 1.2% annualized gain in equipment investment for Q3, with overall GDP growth at 1.8%.¹ 

In July, the annual growth in home prices was primarily driven by strong increases in the New York and California markets. Despite high mortgage interest rates that continue to strain homebuyers’ budgets, home prices have remained relatively stable in most markets, even with increased available inventory. Existing home sales saw a slight uptick due to small decreases in mortgage rates, but overall sales levels remain low. June marked the twelfth consecutive month of annual home price appreciation, with prices up 5.5% compared to the June 2022 peak. However, the pace of price growth is slowing. The CoreLogic S&P Case-Shiller Index showed a 5.4% year-over-year increase in June, down from the 6.5% peaks in February and March. The month-over-month increase in the index was 0.5%, lower than the average increase seen between 2015 and 2019 and significantly below the 1% increase in June 2023. The 10-city and 20-city composite indexes also reported their twelfth straight month of annual increases, though at a slower rate than earlier in the year. Both indexes are significantly higher than their 2006 peaks, with the 10-city composite 56% higher and the 20-city composite 62% higher. National home prices, adjusted for inflation, are now 20% above their 2006 levels.²  

In August, the Conference Board Consumer Confidence Index® rose to 103.3 from 101.9 in July, indicating a slight improvement in consumer sentiment. The Present Situation Index, reflecting current business and labor market conditions, increased to 134.4, while the Expectations Index, indicating consumers’ short-term outlook, rose to 82.5. This marks the second consecutive month the Expectations Index remained above the recession-signaling threshold of 80. Consumers felt more positive about current and future business conditions but expressed growing concerns about the labor market and future income. Confidence declined among those under 35 and those earning less than $25K, while confidence increased among older consumers and those earning over $100K. Financial market volatility in early August likely impacted consumer sentiment, with fewer consumers expecting stock prices to rise. Despite these mixed feelings, the proportion of consumers predicting a recession remained stable. Inflation expectations dropped to 4.9%, the lowest since March 2020. Expectations for higher interest rates also declined for the third month in a row. Purchasing plans for homes hit a 12-year low, while plans to buy cars and some big-ticket appliances saw slight improvements. Consumers were more optimistic about business conditions improving in the next six months but less about job availability and income prospects. Despite weakening assessments of their financial situation, consumers were more hopeful for financial improvement in the coming months. Overall, while consumer confidence increased in August, it remained within the narrow range seen over the past two years.³ 

For the week ending August 24, the seasonally adjusted initial jobless claims were 231,000, a decrease of 2,000 from the previous week’s revised figure. The prior week’s number was adjusted upward by 1,000, from 232,000 to 233,000. The four-week moving average was 231,500, down by 4,750 from the previous week’s revised average, which was increased by 250 from 236,000 to 236,250. The total number of continued weeks claimed for benefits across all programs for the week ending August 10 was 1,883,069, a decrease of 24,295 from the week before. In comparison, there were 1,827,732 weekly benefit claims in the same week of 2023.⁴ 

According to the National Association of Realtors, pending home sales in the U.S. dropped by 5.5% in July. All four regions experienced declines in transactions. Year-over-year, the Northeast saw a slight increase, while the Midwest, South, and West recorded decreases. The Pending Home Sales Index (PHSI), which tracks contract signings, fell to 70.2, its lowest level since the index began in 2001. Compared to the previous year, pending transactions were down 8.5%. NAR Chief Economist Lawrence Yun noted that job growth and increased inventory couldn’t counteract affordability challenges and uncertainties related to the upcoming presidential election. Regionally, the Northeast’s PHSI decreased 1.4% from June but rose 2.4% year-over-year. The Midwest dropped 7.8% from the previous month and 11.4% year-over-year. The South fell 6.5% in July and 11.5% annually, while the West declined 3.8% monthly and 6.0% from July 2023. Yun mentioned that New England has outperformed other regions in recent months, and lower mortgage rates may attract more buyers.⁵ 

In July, U.S. consumer spending rose by 0.5%, signaling a stable economic footing early in the third quarter and casting doubt on the need for a significant interest rate cut by the Federal Reserve. The Commerce Department’s report indicated that inflation was under control, with prices rising moderately. Despite a rise in the unemployment rate to 4.3%, the highest in nearly three years, spending growth remained robust, suggesting resilience in the economy. Fed Chair Jerome Powell hinted at a possible rate cut, reflecting concerns about the labor market. Still, economists argue that current spending patterns do not align with recession conditions, thus not supporting a half-point cut. Consumer spending, representing over two-thirds of U.S. economic activity, rose by 0.4% when adjusted for inflation, maintaining momentum from the second quarter, which saw a 3.0% annualized GDP growth rate. The economy grew at a 1.4% pace in Q1, and the Atlanta Fed has raised its Q3 growth estimate to 2.5%. Spending increases spanned goods and services, notably in motor vehicles, housing, utilities, and healthcare. While hiring has slowed, wage growth has continued to support consumer spending. Personal income rose by 0.3% in July, and the saving rate fell to 2.9%, the lowest since June 2022. Economists differ on the implications of the declining saving rate, with some viewing it as a risk to future consumption. The personal consumption expenditures (PCE) price index rose by 0.2% in July, keeping annual inflation at 2.5%, consistent with the Federal Reserve’s 2% target.⁶ 

1. https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf 
2. https://www.corelogic.com/intelligence/case-shiller-index-june-2024/ 
3. https://www.conference-board.org/topics/consumer-confidence
4. https://www.dol.gov/ui/data.pdf 
5. https://www.nar.realtor/newsroom/pending-home-sales-dropped-5-5-in-july 
6. https://www.bea.gov/news/2024/personal-income-and-outlays-july-2024 

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF).

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