U.S. Existing-Home Sales Hit Highest Level Since October
Sales of previously owned homes rose 2.6% to a seasonally adjusted annual rate of 5.04 million last month, the National Association of Realtors said Tuesday. Revisions showed May sales reached a 4.91 million rate, up from an initially reported 4.89 million pace.
Tuesday’s report showed home prices are growing more slowly than in prior months as more homes come on the market. The median sale price for a home last month was $223,300, up 4.3% from a year earlier.
The inventory of homes available for sale climbed 6.5% from a year earlier. At the current pace, it would take 5.5 months to exhaust the supply, a level close to what economists consider a sign of a balanced market.
One reason sales haven’t reached year-ago levels is that fewer investors are entering the market, Mr. Yun said. The share of June sales going to investors was flat at about 16%, down from 19% just two years ago. As a result, purchases of “distressed” properties—such as those in foreclosure—slipped as a share of overall sales.
First-time buyers are growing slightly, but at 28% of all buyers, they remain a historically small part of the market.
Compared with a year earlier, sales were down 2.3% last month. At the current pace, sales are roughly at the level they were in 2000, even though the U.S. population has grown, the economy has more jobs and interest rates remain historically low. Mr. Yun said the housing market is still “underperforming.”
Note that existing home sales rose M/M in every regions, including the South where housing starts sank 30% in June. Builders’ wet weather excuse gains credibility. July housing starts could thus be quite strong. Had starts in the South grown in line with the rest of the U.S., June starts would have been 20% higher.
This series of charts from the WSJ tell the whole story:
INFLATION WATCH
Gasoline Costs Lift Inflation Gauge
U.S. consumer inflation continued to stiffen last month but largely decelerated outside a jump in gasoline prices, and food costs in particular slowed after surging in recent months.
The index rose a seasonally adjusted 0.3% last month. Excluding the often-volatile categories of food and energy, prices rose 0.1% from May. Food prices ticked up just 0.1% in June from the prior month after rising 0.5% in May and 0.4% in each of the prior three months.
The Cleveland Fed table provides a more complete picture:
The median Consumer Price Index rose 0.2% (2.0% annualized rate) in June. The 16% trimmed-mean Consumer Price Index also increased 0.1% (1.8% annualized rate) during the month.
Over the last 12 months, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.9%, the CPI rose 2.1%, and the CPI less food and energy rose 1.9%.
Total CPI has risen at a 3.6% annualized rate since March and at a 4.1% a.r since April. Core CPI: +2.4% annualized since March and April. Median CPI: +3.0% since March, +3.2% since April. Mrs. Yellen must be relieved with June’s core CPI at +0.1%. In effect, the whole market will be relieved, even though the “noise” is getting noisier. All indicators, core or not, are now at +2.0% Y/Y. Only 5 months ago, yearly total inflation was +1.1%. Nonetheless,
Critics have accused the Fed of “being behind the curve on inflation,” J.P. Morgan Chase chief U.S. economist Michael Feroli said. “One would think this would mollify that to some extent.”
Gavyn Davies Another false alarm on US inflation?
(…) In order to assess whether inflation is or is not a generalised economic process, several core measures have been developed inside the Fed. These are designed to remove spikes in commodity prices and other “flexible” prices, so that more persistent, underlying inflationary pressures can be laid bare. In the latest inflation scare, several of these core measures had shown a marked increase to their highest levels since 2008, which was worrying. But on today’s data, they have fallen back:
(…) It now seems probable that part of the recent jump in core inflation was just a random fluctuation in the data. There have been suggestions that seasonal adjustment may have been awry in the spring.
But the main reason for the lack of concern is that wage pressures in the economy have remained stable, on virtually all the relevant measures. The Fed published the following chart in last week’s Monetary Policy Report to Congress:
Wage inflation is apparently still fixed at around 2 per cent, exactly where it has been ever since the Great Financial Crash in 2008. Productivity growth is volatile from one quarter to the next but, according to Goldman Sachs’ productivity tracker, the underlying growth rate has been running at about 1 per cent per annum in recent years. That means that the underlying growth rate in unit labour costs (labour costs less productivity growth), which is a crucial indicator for the Fed, is running at only about 1 per cent. This is consistent with price inflation at only half the Fed’s 2 per cent objective.
In a major change from their attitude in recent decades, central bankers (even the Bundesbank) have been suggesting that wage inflation is too low, not too high. In the US, wage inflation needs to accelerate to over 3 per cent before the Fed’s leadership would worry that it indicates above-target price inflation for a significant period of time. Although labour market slack is clearly declining as unemployment falls, Fed research published yesterday argued that there remains a large pool of long term unemployed and discouraged workers that can be drawn back into the labour force as the economy expands.
Can price inflation accelerate meaningfully without this being accompanied by a rise in labour cost inflation? It could do so if import prices, or profit margins, provide an inflationary impetus, but neither seems very likely at present. Profit margins are already at very high levels by the standards of past cycles, and global goods prices, excluding commodities, still seem very subdued.
Atlanta Fed President Lockhart said last week that the Fed should wait until it sees “the whites of their eyes” (meaning higher inflation) before raising rates, and Chair Yellen warned about previous “false dawns” in the economy. There is nothing in today’s inflation data to make the doves change their minds. On today’s evidence, there has been yet another false alarm on US inflation.
Isn’t wage inflation always lagging inflation? Anyway, so far, so good…
Australian Inflation Muddies Rate Cut Scenario
Consumer prices rose 0.5% in the second quarter from the first and were up 3.0% from a year earlier, the Australian Bureau of Statistics said Wednesday.
Core inflation, which strips out extraordinary events such as the price effects of extreme weather or new taxes, rose by an average of 0.7% on quarter, up from an expect rise of 0.6%. This measure rose 2.8% from a year earlier, putting it close to the top of the 2% to 3% band that RBA policymakers target.
Spanish Growth Quickens
In its monthly economic performance review, the Bank of Spain said gross domestic product likely grew 0.5% in the second quarter from the first, compared with 0.4% growth recorded in the first quarter.
On an annual basis, the economy is likely to have grown 1.1% in the second quarter compared with the year-earlier period, it said.
The central bank said it now anticipates that Spain’s economy will grow 1.3% in 2014 and 2% in 2015, slightly above earlier projections of 1.2% and 1.7%, respectively.
EARNINGS WATCH
RBC Capital’s tally shows that of the 130 companies (39%) having reported so far, 68% beat and 23% missed.
Excluding C and BAC legal expenses, companies that have reported boast a 7.7% Y/Y EPS growth rate (+4.4% revenue growth), +9.8% ex-Financials on 5.9% revenue growth.
SENTIMENT WATCH
Of the members of the gauge that have reported results so far, 77 percent have exceeded analysts’ estimates for profit and 67 percent have beaten revenue projections, according to data compiled by Bloomberg.
European stocks rose for a second day as earnings from Daimler AG to Akzo Nobel NV beat estimates. Emerging market shares advanced to an 18-month high as Indonesia’s rupiah led gains among higher-yielding currencies.
Strong earnings, inflation behaving, low interest rates and a cool Fed…Will we finally decisively break 1980 on the S&P 500?