Two bits of economic data have unexpectedly good figures: durable goods and new home sales.
As Congress and the administration are griping about American International Group’s (AIG:NYSE) bonus scandal, the rest of the nation has started buying things again.
Big-ticket items, like construction equipment and industrial machinery, climbed in February for the first time in six months. And growth was seen across a number of sectors.
In all, durable goods demand rose 3.4%.
To get an idea of the magnitude of this turn around, January posted a decline of 4.5%, which was later revised to an even more dismal decline of 7.3%. Here are some specifics…
Machinery: +13.5% – biggest gain in nearly five years
Capital Goods: +11%
Transportation: +2%
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Economist had expected demand to fall about 2%. And some analysts are a bit skeptical about the rise. The Wall Street Journal reports, “Economists cautioned that the data still suggest considerable weakness.”
In a note to his clients, as reported by The Wall Street Journal, Ian Shepherdson of the consultancy High Frequency Economics wrote, “The first rise in orders since September is welcome but it is much less impressive than it looks at first sight and it cannot possibly last. The underlying state of industry is still deteriorating.”
But the durable goods data wasn’t the only surprise increase.
New home sales jumped 4.7% in February after posting its lowest figure on record in January.
Sales increased by 337,000, higher than the expected 300,000, and higher than the 322,000 in January.
“This could be the beginning of an improvement,” Charles Smith told Bloomberg. He is the manager of the Fort Pitt Capital Total Return Fund. According to Bloomberg, the fund beat 78% of its peers last year. “The market is essentially saying, ‘Now we have an idea that we’ve already seen the worst rate of change in GDP.’”
Steve Gallagher, chief U.S. economist at Societe General (SCGLY:OTC), also says that the durable goods report was “consistent with our view for positive real GDP in the second half of 2009.”
Could this really be the bottom? This morning’s climb erased yesterday’s drop… And Monday sure saw a massive rally on the U.S. Treasury’s new plan.
Justice Litle, editorial director of Taipan Publishing Group, writes, “Clearly the market liked [Geithner’s] plan, based on Monday’s action – or maybe the market just liked ANY semblance of a plan.”
Justice continues, “Probably the most surprising comment, as relating to the Geithner bank plan, came from John Authers over at the Financial Times: ‘If this plan works as hoped, then it’s quite probable we’ve seen the bottom of the whole bear market. If it doesn’t, then we probably haven’t.’”
Adam Lass, editor of WaveStrength Options Weekly said, “Of course the market’s up… The government just announced a plan worth enough money to buy every single share on the U.S. market right now. How could the market not climb on that news?”
But it doesn’t change the damage this bank plan could do to the U.S. dollar, and that fact will eventually butt heads with these unexpected increases in key economic data.
In other words, the turnaround is going to be about as smooth as Al Pacino’s joy ride in the Ferrari in Scent of a Woman. And that means investors should buckle up…
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