Q2 BOUNCE WATCH
Existing-home sales declined 3.3% last month from March to a seasonally adjusted annual rate of 5.04 million, the National Association of Realtors said Thursday. Sales for March were revised up to 5.21 million from an initially reported 5.19 million.
Sales in April were up 6.1% from the same month a year earlier.
Total housing inventory at the end of April increased 10%, to 2.21 million existing homes available for sale.
NAR chief economist Lawrence Yun blamed the drop in sales on a lack of supply, which in turn is driving up prices. In April, 40% of properties sold at or above their asking price, suggesting bidding wars are becoming common in many parts of the country, Mr. Yun said.
The median sale price for a previously owned home was up 8.9% from a year earlier to $219,400 in April, the biggest increase since January 2004, NAR said. That price is just shy of the peak reached in 2006, when the median sale price for the year was $221,900. (…)
Stephen Stanley, chief economist at Amherst Pierpont Securities, also noted that existing home sales aren’t recorded until contract closing. Thus, “the April reading is still possibly reflective of purchases that were agreed to in February and March, when weather was still an issue,” Mr. Stanley said.
Also, the NAR reported total sales were up 6.1% from April 2014, however normal equity sales were up even more, and distressed sales down sharply. From the NAR (from a survey that is far from perfect):
Distressed sales — foreclosures and short sales — were 10 percent of sales in April, unchanged from March and below the 15 percent share a year ago. Seven percent of April sales were foreclosures and 3 percent were short sales.
Last year in April the NAR reported that 15% of sales were distressed sales.
A rough estimate: Sales in April 2014 were reported at 4.75 million SAAR with 15% distressed. That gives 712 thousand distressed (annual rate), and 4.04 million equity / non-distressed. In April 2015, sales were 5.04 million SAAR, with 10% distressed. That gives 504 thousand distressed – a decline of about 29% from April 2014 – and 4.54 million equity. Although this survey isn’t perfect, this suggests distressed sales were down sharply – and normal sales up around 12%.
When we look at recent data (charts above), existing home sales and inventory look low. When we take a longer-term perspective to look beyond the 2003-2006 bubble, things don’t look all that abnormal.
The Chicago Federal Reserve reported that its National Activity Index (CFNAI) during April moved up to -0.15 from -0.36, revised from -0.42. The three-month moving average remained negative at -0.23, the lowest indication since November 2012. During the last ten years, there has been a 76% correlation between the Chicago Fed Index and the q/q change in real GDP.
The three-month moving average of the CFNAI held fairly steady at its recent low, the weakest indication since October 2012. The Fed reported that 38 of the 85 component series made positive contributions to the total while 47 made negative contributions.
The CFNAI is a weighted average of 85 indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.
The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for May slipped to 6.7 from an unrevised 7.5 in April. It’s been near that level all year, remaining well below the high of 40.2 reached in November. Expectations averaged 8.0 in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, also slipped to 50.3 and remained in this year’s range. It was down, however, from November’s high of 58.7. It is comparable to the ISM Composite index. During the last ten years, there has been a 71% correlation between the adjusted Philadelphia Fed index and real GDP growth.
The new orders, shipments and unfilled orders series improved while inventories, delivery times and the average workweek eased. The employment index also weakened slightly following strength in the prior three months. During the last ten years, there has been an 81% correlation between the employment index level and the m/m change in factory sector employment.
The Conference Board LEI for the U.S. increased again in April, with building permits and the yield spread making large positive contributions. In the six-month period ending April 2015, the leading economic index increased 2.0 percent (about a 4.0 percent annual rate), considerably slower than the growth of 3.5 percent (about a 7.2 percent annual rate) during the previous six months. However, the strengths among the leading indicators remain more widespread than the weaknesses. [Full notes in PDF]
May’s flash PMI survey data painted a downbeat picture of worldwide manufacturing trends, with economies struggling in the face of sluggish global trade flows. However, eurozone exporters, benefitting from the single currency’s depreciation, are outperforming in terms of export gains.
Weak exports were the key to disappointing manufacturing trends in both China and Japan. At 49.1, the flash PMI for China signalled a deterioration in business conditions for a third successive month, fuelled by the steepest drop in export orders for almost two years. Factory output fell for the first time since December as a result. The survey paints a picture of industrial production growth weakening in China from the already sluggish 5.6% annual rate seen in April, edging closer to the low of 5.4% seen at the height of the global financial crisis.
In Japan, the flash PMI rose from 49.9 to 50.9, signalling a modest return to growth. However, although inflows of new order books picked up for the first time in three months, the increase was only modest due to a near-stagnation of export orders for a second successive month.
The poor export performance is a major disappointment, given the weakness of the yen, and suggests further stimulus should not be ruled out from the Bank of Japan.
It wasn’t only in Asia where exports were a notable weak spot in the PMI result. In the US, the flash PMI fell to a 16-month low of 53.8, with growth in the manufacturing economy dragged down by a second successive monthly downturn in export orders. The strong dollar was widely cited as a key cause of disappointing export sales, alongside weak demand, especially from Asia.
There was a brighter picture in the eurozone, however, where the manufacturing PMI rose to a 13-month high of 52.3. The improvement was driven in part by an upturn in new exports orders, which likewise hit a 13-month high (though note this measure includes intra-eurozone trade flows). Companies commonly reported that exports were being buoyed by the euro’s depreciation. Especially welcome was the first (albeit minor) increase in exports from France, which has lagged the wider-region’s recovery, since April of last year.
Less positively, the upturn in the euro area’s manufacturing sector was offset by slower growth in the services economy, though the region remains on track for a 0.4% expansion of GDP in the second quarter.
The impact of currency movement was not confined to exports. The weaker euro was partly to blame for eurozone goods producers reporting that steepest rise in input costs for three years. In contrast, input costs fell in China and rose only very modestly in the US and Japan, despite upward pressure from rising oil prices.
Bird Flu Outbreak Decimates Egg Supply The financial toll of the worst U.S. bird-flu outbreak in history is soaring. The fast-spreading virus has resulted in the deaths or extermination of at least 38.9 million birds. About 10% of the U.S. egg-laying flock has been wiped out.
Egg companies—the sector hit hardest by the virus—and turkey producers are spending millions of dollars to try to contain the disease. With eggs in particular, the problem is greatly complicated by the way the American industry is concentrated in the hands of relatively few producers.
The U.S. government has earmarked nearly $400 million to help compensate poultry farmers for culled birds, cleanup and disease testing. (…)
The wholesale price of “breaker” eggs—the kind sold in liquid form to restaurants like McDonald’s Corp., food-service supplier Sysco Corp. and packaged-food producers—nearly tripled in the past month to a record $2.03 a dozen on Thursday, according to market-research firm Urner Barry. Meanwhile, U.S. prices for wholesale large shell eggs, those sold at the grocery store, have jumped about 85% to $2.20 a dozen in the Midwest. Wholesale turkeys cost $1.14 a pound for a frozen 16-pound bird, 4.5% higher than the price a year ago, according to Urner Barry. (…)
The egg-supply squeeze is pinching profits for some food makers. Post Holdings Inc. warned last week that avian flu has affected about 25% of its egg supplies, forcing it to discontinue some product lines under its Michael Foods business, which makes liquid egg whites and egg product ingredients. Earlier this month, it estimated that fiscal 2015 operating earnings would be reduced by $20 million due to the bird-flu outbreak. (…)
Producers will be reeling for years, egg-industry officials said. One of the major challenges will be the cost to repopulate egg-laying facilities that together house millions of birds on some farms. (…)