The Census Bureau reported today that seasonally adjusted new home sales in June were 1.4% better than had been reported last month, and July sales were up an additional 2.8% from June. To put this another way, the seasonally unadjusted drop in home sales from June to July was more modest than might be expected in a typical year. Even so, it’s unquestionably still been a pretty bad year.
The following plot from Calculated Risk makes clear that July’s bump up could easily just be statistical noise on an unambiguous deep decline:
On the other hand, there’s no denying that today’s numbers for manufacturing orders from the Census Bureau were quite strong. New orders for durable goods were up 5.9% within July alone,
while new orders for nondefense capital goods (excluding aircraft) were up 2.2%:
|Aug 23||4.88||5 1/2||3|
|Aug 22||4.77||5 1/2||2|
|Aug 21||4.89||5 7/8||3|
|Aug 20||5.03||5 1/2||3|
|Aug 17||4.91||5 3/8||1|
|Aug 16||4.97||5 3/8||2|
But all these numbers predate the fun and games in financial markets of the last two weeks, which continued yesterday with more Fed injections to the tune of $14 billion in 12-14 day repurchase agreements (meaning those reserves will come back out of the system in two weeks) and $3.5 billion in overnight. This again came on a day when the effective fed funds rate ended up at only 4.88%, confirming that the Fed is not currently targeting the effective fed funds rate. It’s also interesting that the recent trend in which there is a huge range of prices at which fed funds get traded each day is continuing, as the data at the right from the Federal Reserve Bank of New York reveal.
One interpretation consistent with all this is that there are two sets of banks, one of which, despite the high level of excess reserves in the system, needs to offer over 5% to obtain funds, and the others which could usually borrow at a much lower rate. The goal of the repeated reserves injections is perhaps then to keep the former from paying too much over the 5.25% “target”. That would also be consistent with the otherwise mysterious decision of four big banks to borrow 30-day funds from the Fed at 5.75%.
And it also suggests that the liquidity crunch for such institutions is far from over, making it difficult to expect today’s good news on home sales and capital goods orders to be repeated next month.