Orders for durable goods fell 4.5% month-over-month in August and the July headline reading was revised down to 0.8% from 1.3%, pointing to weak investment spending ahead in the United States. The market was expecting a more moderate 1.6% monthly drop. Core orders, which exclude the volatile aircraft and defence components, fell 2% against an expectation of a 1.6% fall. Third-quarter growth will also be weaker as coincident shipments fell 3.5%.

The report was disappointing on two fronts - not only were core orders weaker than expected, but the prior month's initially reported 2.5% gain in core orders was revised down to only 0.4%.

The weakness was reasonably broad-based with all components except computers and electronics registering declines. Unfilled orders, which are also forward looking, were the one bright spot, with both the headline and core rate rising 0.4%. Nonetheless, this represents a deceleration from the prior month's gains.

In terms of third-quarter growth, the 3.5% fall in headline durable goods shipments was the biggest monthly drop since April 2001. Core shipments fell 1.7% month-over-month as all components fell during August. However, not all of the weakness may be the result of weakening domestic demand - some of it may reflect weaker demand abroad, thereby hurting U.S. exports.

U.S. new home sales continue falling
The U.S. housing market continued to display weakness in August as sales of new single-family homes fell 11.5% from 520,000 in July to 460,000 in August. The prior month's initially reported 515,000 figure was revised up to 520,000. Sales are now down 34.5% from a year ago.

Prices continued to fall, too. The median selling price was $221,900 in August compared to $234,900 (revised up from $230,700) in the prior month. We expect home prices to continue declining until the excess inventory of homes is sold off and the market finds a stable footing.

Month's supply, which measures how long it would take to work off the current backlog of unsold homes at the current level of demand, rose to 10.9 after a 10.3 (revised up from 10.1) reading in the prior month. June's supply level also experienced an upward revision to 10.9 from the 10.7 figure reported earlier. One bright spot is that the absolute number of houses in inventory continues to decrease. At the end of August, the inventory stood at 408,000, down from 427,000 in July.

Also from RBC Economics:
• Sept. 15/08 - U.S. housing starts and permits both fall
• Sept. 11/08 - Canada's merchandise trade surplus shrinks
• Aug. 11/08 - Canadian housing starts plummet
• July 24/08 - New lows in U.S. housing starts