The housing market and remain a major drag on overall economic growth, so the Fed has to continue to cut key . The Commerce Department on Thursday revised its second-quarter up to a 3.8% annual pace, up from a previously estimated 3.3% annual pace. The primary reason for the upward revision was that consumer spending was revised up to a 2.5% annual pace, up from a 1.6% annual pace previously reported. The weak link in the GDP report was residential investment, which declined at a 5.1% annual pace.
The Commerce Department announced on Thursday that the trade deficit in August plunged 16.8% to $85.5 billion as imports declined 7% to $261.6 billion, while exports declined 1.3% to $176.1 billion. Normally, when both imports and exports decline, it is a sign of economic weakness, but due to the U.S. tariffs, trade is expected to be more balanced.
Additionally, the Commerce Department on Thursday reported that rose 2.9% in August due largely to a 50% surge in military equipment as well as a 7.9% increase in transportation. Excluding the volatile defense and transportation sectors, durable goods orders rose a respectable 0.4% in August. Excluding just defense orders, durable goods orders rose an impressive 1.9% in August. Core durable goods orders rose 0.6% in August. So, no matter how you slice it, the August durable goods orders were impressive, so I expect that economists will be revising their third-quarter GDP estimates higher.
New Fed Governor Stephen Miran has been out and about saying the Fed could damage the U.S. economy if it keeps key interest rates too high. On Bloomberg TV on Thursday, Miran said “I don’t think the economy is about to crater. I don’t think the labor market is about to fall off a cliff,” but then added given the risks, “I would rather act proactively and lower rates as a result ahead of time, rather than wait for some giant catastrophe to occur.” In conclusion, Miran said, “My view is that we can get there with a very short series of 50-basis-point cuts, readjust monetary policy, and then move more gingerly once we’re there.” I like Miran, but he is way ahead of other FOMC members calling for a key interest rate cut.
The Commerce Department on Wednesday announced that in August surged 20.5% to an annual pace of 800,000, which is the highest annual pace in three years. Aggressive discounting by homebuilders as well as lower mortgage rates was cited as the primary reason for surging new home sales. This was a massive surprise, since economists were expecting new home sales to decline to a 650,000 annual pace.
The National Association of Home Builders said that 39% of builders cut new home prices, with the average discount being 5%. Median home prices for new homes rose to $413,500 in August, up from $395,100 in July, so clearly, more expensive new homes are being sold.