U.S. New Home Sales Decline Unexpectedly in May
Sales of new single-family homes declined 5.9% (+9.2% y/y) during May to 769,000 units (SAAR) from 817,000 during April, revised from 863,000. It was the lowest level of sales in twelve months. March sales were revised to 886,000 from 917,000. The Action Economics Forecast Survey expected 870,000 sales in May.
Sales in the South fell 14.5% (+3.1% y/y) to 432,000 units after weakening 10.1% to 505,000 in April, revised from 545,000. It also was the lowest level of sales in twelve months. Rising by one-third (57.6% y/y) to 52,000 were sales in the Northeast. April sales were revised to 39,000 from 44,000. Sales in the West rose 6.7% both m/m and y/y to 190,000 from 178,000 in April, revised from 164,000. Sales in the Midwest held at 95,000 (28.4% y/y) but April sales were revised from 110,000.
The median price of a new home rose 2.5% (18.1% y/y) to $374,400, following a 4.9% April gain to $365,300, revised from $372,400. Working 2.3% higher (16.8% y/y) to $430,600 was the average sales price. April’s average price was revised to $420,900 from $435,400. These prices are not seasonally adjusted.
The supply of new homes for sale rose to 5.1 months in May, the most in 12 months. The median number of months a new home stayed on the market was 3.5, following 4.5 months in April and 5.0 months in March.
Sales are back on trend but could undershoot from here as the craze has seemingly ended. It will be interesting to watch prices now. We saw yesterday that prices of existing homes has kept rising while sales eased back on trend :
This CalculatedRisk chart shows that New Home Inventory is back to normal at around 300k units but needs to await completion of units permitted but not yet finished.
FLASH PMIs
- USA: Substantial expansion in private sector activity, but delivery delays stymie manufacturing growth
U.S. private sector businesses registered a further marked expansion in activity during June, as further easings of COVID-19 restrictions boosted new orders. The rate of expansion softened slightly from the high seen in May, but remained substantial overall.
Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 63.9 in June, down from 68.7 in May, but nonetheless signalling a historically elevated rate of expansion in output across the private sector. Moderations in activity growth were seen in both the manufacturing and service sectors, with goods producers hampered in particular by significant supplier delays and both sectors reporting difficulties finding staff.
New business growth remained marked during June, despite easing to a three-month low. The rise in new orders was substantial among manufacturers and service providers alike, as COVID-19 restrictions were relaxed further and client demand remained buoyant. At the same time, firms reported another strong monthly upturn in new export orders amid looser containment measures in key export markets.
Price pressures also remained elevated in June. The rate of input price inflation softened slightly but was the second-fastest on record. Manufacturers continued to note rapid increases in raw material and fuel costs, whilst service providers highlighted higher wage bills to attract workers plus greater transportation fees and fuel costs.
Higher costs were commonly passed on to clients through a steep rise in output charges during June. The increase in selling prices was the second-sharpest since data collection began in October 2009.
Employment issues remained prevalent during June, as numerous panellists mentioned difficulties finding suitably trained candidates for current vacancies. Although the rate of job creation remained strong overall, growth in backlogs of work was also among the highest seen over the past decade.
Business confidence ticked higher in June, as firms remained broadly upbeat regarding the outlook for output over the coming 12 months. Optimism was widely linked to strong client demand and the further reopening of the economy following mass vaccination.
The seasonally adjusted IHS Markit Flash U.S. Services PMI™ Business Activity Index registered 64.8 in June, down from May’s series record of 70.4. The marked expansion was the second-sharpest since data collection began in October 2009, and reportedly due to further upturns in customer demand as pandemic conditions eased further during the month.
Service sector activity was supported by a further significant rise in new business. Although slower than that seen in May, the rate of growth was among the quickest in the series history and was linked to robust demand conditions. New export order growth likewise remained strong, with some firms attributing this to looser travel restrictions.
Meanwhile, struggles among companies to find suitable workers hampered employment growth in June. Although strong, the rate of job creation was the slowest for three months. Pressure on capacity was reflected in a solid rise in backlogs of work.
At the same time, inflationary pressures remained elevated in June. Service providers stated that wage costs and additional transportation fees pushed up cost burdens, which rose at the second-fastest pace on record. Similarly, output prices increase markedly as firms sought to pass on greater input costs to clients.
Service sector businesses registered a slight moderation in the degree of optimism in June, with some concerned about the impact of rising inflation over the coming months.
June data signalled the greatest improvement in operating conditions among goods producers on record, as highlighted by the IHS Markit Flash U.S. Manufacturing PMI posting 62.6, up from 62.1 in May.
Rates of output and new order growth remained well above their respective series averages. However, there were reports that the softer rise in production among manufacturers was linked in part to supplier delays and difficulties finding suitable workers. Average supplier delivery times lengthened to the greatest extent on record by some margin.
Despite a substantial rise in backlogs of work, employment growth slowed in June as firms struggled to find staff or entice workers back to employment.
Amid worsening vendor performance, input prices soared once again at the end of the second quarter. The rate of input cost inflation accelerated to a fresh series record amid broad-based raw material price hikes. Firms raised their selling prices at a quicker rate in an effort to pass on these higher costs, with charge inflation also surpassing all previous records.
Unlike their service sector counterparts, goods producers expressed a greater degree of confidence in future output during June. Firms reportedly hope that an end to restrictions and further increases in customer demand will boost output over the next year.
The headline IHS Markit Eurozone Composite PMI® increased from 57.1 in May to 59.2 in June, its highest since June 2006, according to the preliminary ‘flash’ reading*. The latest reading indicated a third successive month of accelerating output growth as the economy continued to open up from COVID-19 related restrictions.
A further improvement in demand was also recorded, as new order growth likewise accelerated to the fastest since June 2006.
Business confidence in the outlook meanwhile rose to the highest since future sentiment data were first available in 2012, buoyed by the recent surge in demand and prospects of the economy opening up further in coming months.
Manufacturing continued to lead the upturn, reporting a twelfth successive month of output growth with the rate of expansion picking up again, albeit remaining slightly below March’s record high. Production growth was again sharpest in Germany, with France lagging the rest of the region amid a slower rate of new order growth.
Although manufacturing reported the stronger pace of growth, it was the service sector that again reported the biggest improvement in performance, with business activity growth accelerating to a pace not exceeded since July 2007.
The steepening pace of service sector growth seen over the past three months contrasts markedly with the seven months of successive declines seen prior to April, and principally reflects the easing of virus-fighting measures in many eurozone member states, notably in hospitality. Service sector growth accelerated across the region, albeit with an especially marked improvement in performance evident in Germany.
Underscoring the economic boost from the removal of some pandemic-related travel restrictions was the largest rise in services exports since at least September 2014 (when data were first collected).
The renewed surge in demand and brightening outlook prompted firms to take on additional staff for a fifth straight month, boosting employment numbers to the greatest extent since August 2018.
Despite the rise in employment during the month, with job gains in both manufacturing and services hitting the highest since 2018, firms reported the largest accumulation of backlogs of work since data were first available in 2002. While manufacturers reported an especially marked rise in uncompleted orders, backlogs also rose at the fastest rate for over two decades in the service sector.
Rising backlogs of work were accompanied by widespread supply shortages for many inputs. Manufacturers reported a lengthening of supply chains that was only slightly less marked than the 24-year survey record seen in May. Producers’ inventories of finished goods stock meanwhile fell at the sharpest rate since 2009 as high sales depleted warehouses.
Amid these signs of demand continuing to run ahead of supply for many goods and services, inflationary pressures increased again in June.
Average input prices rose at a rate exceeded only once (in September 2000) over the 23-year survey history. A record increase in manufacturers’ material prices was accompanied by the steepest increase in service sector costs since July 2008, the latter reflecting widespread reports of higher supplier prices, increased fuel and transport costs plus rising wage pressures.
Average prices charged for goods and services meanwhile rose at by far the fastest pace since comparable data for both sectors were first available in 2002, with prices rising in each sector at rates not exceeded for approximately two decades.
Note the first mentions of wage pressures in both the U.S.the Eurozone.
More from Markit:
Supply shortages continued to put pricing power in the hands of the seller, causing industrial prices to rise at survey record rates in the US, Eurozone and UK.
With service sector costs also being pushed higher by a combination of higher supplier prices, rising fuel costs and wage pressures, average input costs across the G4 economies rose in June at the fastest rate since comparable data were first available in 2009.
Selling price inflation also hit a new all-time survey high across the G4 as firms increasingly passed these higher costs on to customers. Selling price inflation was led by the US, despite the pace moderating slightly, though the UK and Eurozone saw fresh record rates of inflation.
Prices in Japan meanwhile again rose only modestly by comparison in June as sellers continued to offer discounts to stimulate sluggish sales.
Many of the price pressures reflect pandemic-related disruptions, many of which should prove temporary. Employment across the G4, for example, is running behind output growth as firms struggle to find sufficient numbers of staff to meet the sudden rise in demand that has accompanied the opening up of economies, most notably in the US. This has pushed up pay growth in many cases.
Many material price rises have meanwhile reflected temporary supply chain disruptions emanating from the pandemic, including a lack of transport or container availability and port congestion due to COVID-19 restrictions. These have been exacerbated by record safety stock building in recent months, the impact of which should soon wane.
However, it remains uncertain how long these disruptions will persist for, especially if further virus waves threaten to disrupt supply chains in Asia, in particular. It also remains unclear how far labour participation rates have fallen, and for how long they might remain lower than before the pandemic, which could affect longer term pay trends.
Fed’s Bostic Says Bond Buying Drawdown Near, Sees Rate Rise in Late 2022 Federal Reserve Bank of Atlanta President Raphael Bostic said Wednesday he has moved forward his expectations for a central bank rate rise to next year and that the time is coming soon for the Fed to pare its bond buying stimulus efforts.
TRANSITORY WATCH
(…) The most-active lumber futures contract on the Chicago Mercantile Exchange is almost 50% below last month’s record high of $1,733.50 per 1,000 board feet. Spurred sharply higher by strong home building and renovation demand, prices are still well above historical levels, at around $900, more than double the cost just a year ago, when the rally began.
Capital Economics forecasts that lumber prices will drop to $600 per 1,000 board feet by the end of 2021. (…)
Winter storms in the first quarter of this year reduced supplies of resin, which is used to make oriented strand board, or OSB, a lower-costing stand-in for plywood that is widely used to make walls and floors in U.S. houses. That has led to a supply shortage and price rally in OSB.
“It’s even more difficult to get OSB at the moment than it is lumber,” Flitman said.
The bellwether of the industry — the wholesale market where dealers buy and sell in bulk — has already topped out and prices of individual second hand cars should follow in a matter of weeks, said Zo Rahim, industry analyst at Cox Automotive. Cox owns Manheim, the biggest U.S. auction house selling millions of vehicles every year. (…)
The cost of used cars and trucks climbed 10% in April, and another 7.3% in May when they were responsible for one-third of the overall rise in consumer prices. (…)
Manheim’s wholesale index of used-vehicle value was 36% higher than a year earlier as of mid-June –- down from an annual rate above 50% in April. One effect of higher prices has been to push the average age of vehicles on U.S. roads up to a record 12.1 years in January. (…)
- American Airlines ‘was warned’ over shortages that prompted flight cancellations Pilots’ union says US carrier is understaffed for planned increase of services as demand returns
China’s Debt Reckoning Hammers ‘Too Big to Fail’ Borrowers
(…) Beijing is taking advantage of a strengthening economy and stable financial markets to toughen up its corporate sector. The result is a repricing of risk that should discourage the kind of reckless debt-fueled expansion that inflated some companies to a dangerous size. The spawning of such bloated empires created a threat to the financial system as well as a challenge to President Xi Jinping’s grip on power.
The danger for Xi is that smashing investor faith in government guarantees triggers precisely the kind of crisis he’s trying to avoid. It’s a dilemma that has frustrated Chinese leaders for decades: Ending moral hazard for indebted giants like China Huarong Asset Management Co. and China Evergrande Group would make the financial system more resilient over the long run, but a major default would cause significant short-term pain. (…)
The shift was visible in May’s credit data, which showed net corporate bond issuance contracting by the most in four years. (…)
Companies are under more scrutiny than ever as Xi enters a crucial period in his rule. China’s leader has in the past year doubled down on perceived threats to the Communist Party ahead of a 2022 leadership shuffle that could see him hold on to the presidency for a third term. (…)
State-owned enterprises aren’t immune. SOEs and other non-private corporates accounted for 54% of the value of onshore defaults in the first four months of the year, according to JPMorgan Chase & Co. (…)
Vaccination time-line
California‘s drought is so bad that almond farmers are ripping out trees, dairy farmers are sending cows to slaughter, and fields are sitting bare because it’s too costly to irrigate them. Meanwhile, farmhands are working in life-threatening conditions as the brutal temperatures increase the risk of heat stroke and dehydration. Of course, this isn’t just a California problem. The state’s dramatic situation is a stark reminder that climate change is here and it’s wreaking havoc on food production across the world. (Bloomberg)