There were two 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 tumbled by 7.6 percent in August to a seasonally adjusted annual rate of 609,000 units. This was the largest sequential decline since October 2015 but actually better than economists had expected and the prior month’s figure was revised slightly higher. Moreover, new home sales are still up 20.6 percent compared to this same period last year. Regionally, home sales improved last month in the West (+8.0 percent) but fell in the Northeast (-34.3 percent), the South (-12.3 percent), and the Midwest (-2.4 percent). The median sales price of new houses sold in August fell to $284,000, the second monthly decline in a row and a sign that homebuilders are perhaps catching on that there is demand for more reasonably priced homes. Further, the inventory of new single-family homes inched higher to 235,000 units, and months’ supply rose to 4.6 at the current sales pace. New home sales are extremely volatile but still worth keeping track of because historically this metric tends to head sharply lower ahead of a recession.
Elsewhere, a report from the Federal Reserve Bank of Dallas showed that business activity in the southern region of the country rebounded this month, as the general activity index lifted from -6.2 to -3.7. Although a welcome improvement, this was still the 21st negative (contractionary) print in a row. The production index, though, a key measure of state manufacturing conditions, jumped in September (+4.5 to +16.7) and is now signaling the fastest pace of expansion in two years. Under the hood, current measures of capacity utilization, shipments, wages/benefits, total employment, hours worked, and capital expenditures all improved this month but new orders and the growth rate of orders weakened. Gauges of future activity (six months ahead) also deteriorated in September and comments from surveyed managers were largely mixed:
- The labor pool we draw from is the same as construction home building. Since that segment is going strong, we have had to hand out more money to our senior employees in order to keep them.
- Finding qualified skilled and unskilled workers continues to be a problem. Customers want price reductions and employees want higher wages; neither will be satisfied.
- It appears our customers are basically on hold waiting for the election and for the Saudis to determine the direction of oil prices. The market continues to be very soft, and competitors are pricing extremely aggressively to simply stay in business. I am expecting that several of our suppliers will go out of business after the first of the year unless business picks up significantly.
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. Census Bureau, FRBD, FRBSLPost author: Charles Couch