There are lots of reports on the U.S. economy worth mentioning today. First, data from the Federal Reserve Bank of Philadelphia showed that manufacturing activity in the Mid-Atlantic region of the country slowed this month, with the general business conditions index falling from +4.7 to -2.9. This was much worse than expected, the lowest reading since February, and the 9th negative (contractionary) print of the past eleven months. Despite the headline weakness, measures of new orders, shipments, inventories, total employment, and the average employee workweek all improved in July, although the latter three continued to signal contraction. Prices paid this month increased at a faster pace than prices received, implying additional margin pain for manufacturers. On the bright side, outlooks for general business conditions six months from now firmed, and capital expenditure plans rose markedly. Managers in the July survey were also asked a series of special questions about the importance of seasonal factors but a majority of firms (62 percent) reported that such issues are not significant in relation to production. Overall this was a mixed report, which together with last week’s regional manufacturing data from the New York Fed suggest that a clear end to the “industrial recession” in America that started last summer is still nowhere to be found.
Contrasting with the above-mentioned government data is a report from IHS Markit, which suggests that national manufacturing activity in America improved this month. Specifically, the flash (mid-month) reading on Markit’s manufacturing purchasing managers’ index (PMI) lifted to 52.9 in July, better than expected and the highest headline reading since October of last year. Under the hood, output growth accelerated to an 8-month high in July, and measures of new business volumes and manufacturing employment rose considerably. Export orders expanded at a relatively weaker pace this month, likely due to the strong U.S. dollar and therefore suggesting that domestic markets remain the main driver of growth. Some surveyed managers noted that “weak demand from the energy sector and uncertainty related to the presidential election remained growth headwinds.” Markit’s chief economist Chris Williamson, added that “It remains too early to say if this is the start of a stronger upturn, but this is a welcome and encouraging sign of revival after the second quarter, in which the PMI signaled the sector’s worst performance for over six years.”
Next, data from the National Association of Realtors (NAR) showed that total existing home sales in America, which account for a much larger portion of the overall U.S. housing market than new home sales, rose by 1.1 percent in June to a seasonally adjusted annual rate of 5.57 million units. This was the smallest monthly gain since February but still a larger increase than economists had expected and the highest total sales reading in nearly a decade. Year-over-year sales growth, though, declined to just 2.96 percent last month, and NAR chief economist Lawrence Yun cautioned that “it's unclear if this current sales pace can further accelerate as record high stock prices, near-record low mortgage rates and solid job gains face off against a dearth of homes available for sale and lofty home prices that keep advancing.” However, Yun did say that “more traditional buyers and fewer investors were able to close on a home” last month. Regionally, home sales in June were flat in the South, fell in the Northeast (-1.3 percent), and rose in the West (+1.7 percent), and the Midwest (+3.8 percent). Total housing inventory dipped in June to 2.12 million existing homes available for sale, and months’ supply fell to 4.6 at the current sales pace. The median selling price was $247,700 in June, a 4.8 percent gain compared to this same period last year, the 52nd consecutive month of annual growth, and the highest reading on record.
Elsewhere, the U.S. Federal Housing Finance Agency’s (FHFA’s) national home price index (HPI) rose 0.2 percent in May (lagged), a much smaller increase than expected following April’s upward-revised figure, and overall the weakest monthly gain since June of last year. As a result, year-over-year growth in home values slid from 5.9 percent to 5.6 percent in May, the lowest reading since last August but still well-above the current pace of both headline consumer inflation and wage growth. Moreover, it remains likely that home prices in America will have risen for twenty consecutive quarters through Q2, one of the longest such uptrends in U.S. history. Some economists like to compare the HPI to the owners' equivalent rent section of the monthly consumer price index (CPI) report from the U.S. Bureau of Labor Statistics to help spot price bubbles. As the last chart below shows, home values have increased significantly in recent years but remain below the extremes seen prior to the last recession. Regardless, low mortgage rates, tight supplies, and continued improvement in the labor market should all be supportive of higher home prices going forward.
Finally, data from the U.S. Department of Labor showed that seasonally adjusted initial jobless claims totaled 253K in the week ending July 16th, a decrease of only 1K from the prior week’s figure. However, this was much better than economists had expected and the lowest headline claims reading in three months. Weekly claims data can be quite volatile but even the smoother 4-week moving average is now at the lowest level since April. Moreover, this was the 72nd weekly initial claims reading below 300K, one of the longest such strings on record and a pattern believed to be consistent with an overall healthy labor market. The number of Americans filing for jobless benefits has fallen considerably since early May, something which many analysts hope implies that the sharp slowdown in job creation that occurred that month was only a temporary setback. June’s significant rebound in job growth supports that viewpoint, and the continued downtrend in total claims for unemployment benefits suggests that job creation remained elevated this month as well. Next week, though, we may see an uptick in jobless claims but this could simply be due to seasonal factors related to auto production, i.e. automakers in July will often temporarily shut down plants to retool them for the new model year.
Sources: Econoday, IHS Markit, Bloomberg, ZH, FRBP, U.S. DoL, NAR, FHFA, FRBSLPost author: Charles Couch