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Brian Jacobsen

Home prices and capital goods continue to improve

AdvantageVoice® Blog—6-25-13
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

The April S&P/Case-Shiller Home Price Index rose 12.1% from a year ago. Price increases were widespread. The recent rise in mortgage rates could slow the pace of purchases but likely won’t affect the continued increase in home prices.

New orders for manufactured durable goods in May increased 3.6%, driven mainly by aircraft orders, which increased 51.0%. Capital goods orders, excluding defense and aircrafts, increased 1.1%. This nonaircraft/nondefense capital goods measure is typically viewed as core orders that point to the underlying health of the economy.

Home prices are rising and capital goods orders are continuing to increase. These point to slow but continued growth for the overall economy. This data is somewhat old and tells us nothing about whether the data flies in the face of the Fed’s forecasts. The data for June and July are likely to be not as positive as the Federal Reserve’s (Fed’s) forecasts, meaning the Fed is likely to wait to taper longer than many people may expect.

The key for Fed policy is probably to watch commodity prices and measures of inflation. The Fed is banking on deflationary forces to be transitory. While the Fed was right to say that the inflationary pressures from rising commodity prices were transitory, the ride down is likely to be deeper and more protracted than the ride up. That could make deflationary or disinflationary pressures more than just transitory.

The views expressed are as of 6-25-13 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.

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