U.S. Pending Home Sales Rise to Highest Level Since June
Pending sales of single-family homes jumped 6.1% (-5.2% y/y) during May, according the National Association of Realtors (NAR), following a little-revised 0.5% April increase. The latest level was the highest in eleven months.
Home sales improved across the country last month. In the Northeast, sales jumped 8.8% (0.2% y/y) to the highest level since June. In the West, sales gained 7.6% (-11.1% y/y) but remained down 17.0% during the last eleven months. In the Midwest, home buying improved 6.3% but remained off 6.6% y/y. In the South, sales rose 4.4% (-2.9% y/y) to the highest level in nine months.
Another reminder that housing is a local biz:
German Retail Sales Contract Again as All Growth Rates Turn Lower
German retail trends are turning lower as three-month, six-month and twelve-month growth rates are all sub-zero. Moreover, sequentially the sales drop is getting progressively larger. Even car registrations are showing a sharp deceleration. The Ifo and ZEW surveys have been slipping, but the GfK survey dedicated to assessing consumer confidence continues to push higher. Yet, German consumers are pulling back. In the quarter-to-date (two of three quarters data are in) retail sales are falling at an impressively weak -6.1% annual rate (-5.9% in real terms). That’s a big chunk of Germany GDP gone negative.
Real retail sales are steady or accelerating in the other early European reporters of retail trends. In the UK and Spain, real sales are growing at a pace of 8.4% and 6.3%, respectively in the unfolding quarter.
Euro-Area Jobless Rate Unchanged as Crisis Legacy Lingers
The jobless rate remained at 11.6 percent after the April number was revised down from 11.7 percent, the European Union’s statistics office in Luxembourg said today. The median forecast in a Bloomberg News survey of 26 economists was for the rate to hold at the previous level.
Joblessness continued to vary widely across the euro area in May, from a low of 4.7 percent in Austria to 25.1 percent in Spain. Greece reported a rate of 26.8 percent for March. The unemployment rate for people under 25 in the euro zone decreased to 23.3 percent from 23.4 percent.
EARNINGS WATCH
Yes, earnings season coming soon!
Lowest cuts to earnings estimates for a quarter since Q1 2011
Over the course of the second quarter, analysts have lowered earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the estimates for all 500 companies in the index) dropped 1.5% (to $29.01 from $29.45) from March 31 through last Friday.
During the past year (4 quarters), the average decline in the EPS estimate during the quarter has been 3.9%. During the past five years (20 quarters), the average decline in the EPS estimate during the quarter has been 2.9%. During the past ten years, (40 quarters), the average decline in the EPS estimate during the quarter has been 4.6%. Thus, the decline in the EPS estimate recorded during the course of the Q2 2014 quarter was smaller than the trailing 1-year, 5- year, and 10-year averages.
In fact, this is the smallest percentage decline in the bottom-up EPS for a quarter since Q1 2011, when the bottom-up EPS estimate for the index fell only 0.6% (to $22.08 from $22.20) during the quarter. While the downward estimate revisions were smaller than average, the expected earnings for the index still declined during the quarter. Over this same time frame, the value of the S&P 500 increased 4.5% (to 1957.22 from 1872.34).
In recent quarters, it has not been unusual for the value of the index to increase at the same time analysts are trimming earnings estimates for the same quarter. It has occurred in 14 of the past 20 quarters (including Q2 2014). During these 14 quarters, the average decrease in the bottom-up EPS has been 2.9%, while the average increase in the value of the index has been 7.2%.
Of the 20 companies that have reported earnings to date for Q2 2014, 14 have reported earnings above the mean estimate and 13 have reported sales above the mean estimate.
And from Scotia Capital:
S&P 500: Q2/14 Earnings Preview: Another Record Quarter
Profit margins keep rising. S&P 500 profit margins have been hovering in the 9%+ range since 2011, with margins pushing to a record high of 9.8% in Q1. Despite skepticism, we believe S&P 500 profit margin will remain stuck at elevated levels in the foreseeable future. We see two factors sustaining margins: rising capacity utilization and low wage pressures.
Until capacity utilization exceeds the 80%-82% level (currently 79%) and wage pressure are more visible, profit margin should continue to defy gravity, in our view, and support earnings growth despite modest top-line expansion.
Looking forward, we expect U.S. earnings growth to remain supported by improving U.S. and global economic activity and strong profit margins. We forecast S&P 500 EPS to expand 9% to US$117 in 2014 and 7% to US$125 in 2015. Bottom-up consensus stands at US$118 and US$132, respectively.
