There were several important reports on the U.S. economy released this morning. First, data from the Census Bureau showed that sales of new single-family homes in America rose by 3.5 percent in June to a seasonally adjusted annual rate of 592,000 units. This was much better than economists had expected and the highest reading since 2008. Regionally, home sales increased in the Midwest and the West last month but declined in the Northeast and the South, albeit only slightly. The median sales price of new houses sold in June lifted to $306,700, the inventory of new single-family homes was practically unchanged at 244,000 units, and months’ supply slid to 4.9 at the current sales pace. This signal of tightening inventories likely explains the steady rise in selling prices. On the bright side, the continued uptrend in new home sales is encouraging because historically this metric has turned firmly lower ahead of every recession.
Next, the mid-month (flash) reading on the services sector purchasing managers’ index (PMI) from IHS Markit was 50.9 in July, down from 51.4 in June. Any reading above 50 implies activity expansion but this was still one of the lowest readings seen during the current economic recovery. Under the hood, measures of new orders growth and employment improved, and overall business confidence rebounded as many surveyed managers anticipate that activity will pick up following the presidential election. Some respondent also noted an upturn in client demand but others suggested that “a weak economic environment had made it more difficult to secure new work.” Altogether, the U.S. services sector continues to expand but the recent deterioration in this metric is discouraging because this area of the economy has been largely offsetting the persistent weakness seen in U.S. manufacturing over much of the past year.
Elsewhere, a report from the Federal Reserve Bank of Richmond showed that manufacturing activity in the Mid-Atlantic region of the country rebounded this month, with the composite index surging from -7.0 to +10.0. That was significantly better than economists had expected, the largest month-over-month increase since March, and the highest reading since April. Under the hood, measures of shipments, new order volumes, capacity utilization, vendor lead-time, total employment, hours worked, and wages all improved considerably this month. Business managers’ outlooks on activity over the next six months also improved in July, as did capital expenditure plans. Altogether, this was a very encouraging report but overall the data on regional manufacturing activity released in July have been mixed, suggesting that it is still too early to tell whether the “industrial recession” in America that started last summer has truly ended.
Finally, the consumer confidence index from The Conference Board edged lower in July to 97.3, little-changed from June’s downward-revised 97.4 print and better than economists had expected. Optimism about current economic conditions improved this month but surveyed Americans were found to be slightly less positive about conditions six months from now. Specifically, 28.1 percent of respondents described current business conditions as “good” in July, and 23.0 percent believed that jobs are “plentiful.” Only 15.9 percent of surveyed consumers, though, said that they anticipate better business conditions over the next half a year, and just 14.0 percent believe that there will be more job opportunities. Expectations for wage growth also declined in July and remain well below pre-recession levels.
Sources: Econoday, Bloomberg, Twitter, ZH, U.S. Department of Commerce, IHS Markit, FRBR, The Conference Board, Advisor Perspective, FRBSLPost author: Charles Couch