There were two important reports on the U.S. economy released this morning. First, sales of new single-family homes in America fell by 5.5 percent in September to a seasonally adjusted annual rate of 553K units, according to Census Bureau data. That was significantly worse than anticipated, the largest monthly decline since June, and the prior month’s figure was revised sharply lower. Regionally, sales rose in the Midwest (6.9%) in September and fell in the Northeast (-40.6%), the West (-12.0%), and the South (-1.5%). On a year-over-year basis, new home sales plunged by 13.2 percent in September, the largest annual drop recorded since 2011. A rapid rise in home values weighed heavily on sales this year, and the recent spike in mortgage rates presents another affordability challenge. Housing inflation, though, is starting to cool somewhat as more supply becomes available. More importantly, there have been several disappointing reports on the real estate market in America released recently, but new home sales will be the one to pay the closest attention to going forward because this leading economic indicator tends to head sharply lower ahead of a recession.
Elsewhere, business activity rebounded this month, according to a new report from IHS Markit. Specifically, the research firm’s composite purchasing managers index (PMI), which looks at both manufacturing and services sector activity, rose to 54.8 in October. That was a 3-month high and better than economists expected. A big factor behind the headline increase was the continued rise in new work, which surveyed managers attributed to improving domestic economic conditions and rising client demand. As for employment, hiring remained elevated as businesses tried to offset the additional pressure on operating capacity resulting from solid new business growth. Finding qualified workers, though, remains an obstacle that is putting upward pressure on wages. That is a problem (for margins) since other input costs are already on the rise. In fact, the October data revealed that operating expenses rose this month at the fastest pace in almost half a year, due largely to “stretched domestic supply chains in the wake of trade tariffs.” Markit’s chief economists Chris Williamson added that “Average prices charged for goods rose at one of the fastest rates seen over the past seven years while average charges for services showed the second-largest rise since the global financial crisis.”
Sources: Econoday, IHS Markit, U.S. Census Bureau, ZH, FRBSL
Post author: Charles Couch