Sales of newly built homes rose to a five-year high in June, boosting a key sector driving the economic recovery.
New-home sales increased 8.3% last month to a seasonally adjusted rate of 497,000, the Commerce Department said Wednesday. That was the highest level since May 2008. Sales were up 38% from a year earlier.
The stock of new homes for sale at the end of June was 161,000. That would take 3.9 months to deplete at the current sales pace, the quickest since January. Meanwhile, the median price for a new home sold in June was $249,700, up 7.4% from that time last year.
However, new home prices declined by 5.0% MoM in June, following a 6.8% decrease in May.
The latest report showed that sales were weaker in earlier months than previously reported. May’s pace was revised down to 459,000 from 476,000, and April’s figure also was a slower rate than first estimated. (Charts from Haver Analytics)
Bookings for goods meant to last at least three years increased 4.2 percent, led by transportation equipment, after a revised 5.2 percent gain in May that was bigger than initially reported, the Commerce Department said today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 1.4 percent advance. Unfilled orders for big-ticket goods rose the most since December 2007.
Orders excluding transportation equipment, which is volatile month to month, were unchanged after a 1 percent advance in May that was twice as much as previously estimated.
Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in computers, electronics and other equipment, climbed 0.7 percent in June after rising 2.2 percent the prior month.
Here’s Doug Short’s chart that matters:
And Zero Hedge’s one to keep you gloomy. Note that this is for shipments, not orders:
The WSJ continues:
In a sign industrial production will be sustained, the backlog of orders to factories jumped 2.1 percent in June, the most since the end of 2007. Unfilled orders for non-military capital goods excluding transportation equipment climbed 1.7 percent last month after a 1.2 percent increase.
Macroeconomic Advisers in St. Louis, which updates its estimate of gross domestic product with each new piece of data, forecasts the economy grew at a 0.7 percent annual rate in the second quarter, down from a 1.7 percent estimate at the start of July. Second-quarter data are scheduled to be released July 31. The world’s largest economy expanded at a 1.8 percent pace in the first quarter.
Growth is projected to pick up in the second half of the year, climbing 2.3 percent in the third quarter and 2.6 percent in the last three months of the year, according to the medians in a Bloomberg survey of 70 economists.
The Architecture Billings Index, released by the American Institute of Architect son Wednesday, dipped to 51.6 in June from 52.9 in May. Despite the slip, the index remained in growth territory and was led by the new projects inquiry index component, which jumped to 62.6 from 59.1 the previous month.
The two-month sustained positive numbers come after a dip into negative territory in April, when the index fell to 48.6, the first time in 10 months the index had dropped below 50.
Billings were strongest in the Northeast, which had a reading of 55.6. The South posted a 54.8, the West 51.2, and the Midwest trailed with 48.3.
The commercial and industrial sector index led with 54.7, followed by multi-family residential with 54.0. The mixed-practice segment, a combination of retail and residential space, and the institutional segment were both in positive territory.
(…) In the first of a series of about a half-dozen speeches that will lay out his blueprint for sustained economic growth, Mr. Obama offered mostly familiar policy prescriptions. (…)
“Washington has taken its eye off the ball. And I am here to say this needs to stop,” he said at Knox College here, positioning himself as an outsider in the debates in the nation’s capital. (…)
Mr. Obama’s own job-approval rating has slumped to 45%, the lowest level for him since late 2011, while disapproval of Congress has reached a record 83%. (…)
Sprinkled throughout the speech were familiar proposals, including calls for investments in infrastructure; government job training programs that are more directly connected to business needs; expanded pre-kindergarten programs; federal policies designed to reduce college costs; and an increased minimum wage.
He also called for an end to the across-the-board spending cuts known as the sequester, which he described as a meat cleaver that has cost jobs and harmed growth. And he made a new pitch for an overhaul of the immigration system, saying more legal immigrants could pay the taxes to help finance imperiled retirement programs. (…)
Businesses in Germany and the Netherlands became more optimistic about their prospects in July, as did Italian consumers, another indication that the euro zone is emerging from its longest postwar economic contraction.
Germany’s closely watched Ifo business confidence index rose to 106.2 in July, its third consecutive monthly increase. Italian consumer confidence hit its highest level in more than a year in July as households’ optimism about the economic outlook improved, official data showed Thursday. The Dutch producer confidence index reached its highest level since April 2012, but still came in negative at minus-3.5 in July, the statistics bureau CBS said, adding that Dutch businesses are only “slightly less pessimistic.”
But persistently weak loan growth suggests any recovery for the region’s economy is likely to be modest.
Surveys from Germany and Italy signaled that businesses and consumers are feeling more upbeat about their outlook, and business sentiment in the Netherlands also showed some improvement this month. The indicators come after euro-zone business activity expanded in July for the first time in 18 months, according to a closely watched survey released on Wednesday.
Weak demand for credit and risk-averse banks continue to drag on the economy, dampening any prospects for a full recovery in the euro zone. Loans to euro-zone businesses fell by €13 billion ($17.2 billion) in June, following similar drops in April and May, data from the European Central Bank showed Thursday. Loans to households also fell in June, the ECB said. (…)
Banks continue to expect demand for loans from firms to weaken in the third quarter as they further tighten standards, albeit at a slower pace, a quarterly ECB banking lending survey showed earlier this week, blaming weak fixed investment and economic uncertainty.
Economists caution improvement is due to seasonal factors
The number of unemployed Spaniards fell by 225,000 in the second quarter of the year, the largest such drop since the financial crisis started more than five years ago and a boost to government claims that the economy is finally picking up.
The fall takes the total jobless figure to 5.98m, while the rate decreased by 0.9 points to 26.3 per cent. (…)
The government was bolstered earlier this week when the Bank of Spain published an estimate showing that the economy may have contracted by as little as 0.1 per cent in the second quarter – after a drop of 0.5 per cent in the first three months of the year. If confirmed, the second-quarter estimate would be consistent with Madrid’s forecast of a return to growth in the second half of the year. (…)
Spain traditionally sees a spike in employment ahead of the summer tourist season.
That bounce is likely to have been even stronger this year, as holiday-makers from Germany, Britain and other European countries shun destinations such as Turkey and north Africa, which have suffered well-publicised bouts of political instability. (…)
Carmaker signals the worst may be over for the continent
Ford’s revival in Europe echoes results from General Electric. Last week, the industrial conglomerate said that orders in Europe were up 2 per cent. That does not sound great, especially when orders in the US were up 20 per cent, but European orders in the first quarter had been down a dispiriting 17 per cent and had contributed to disappointing earnings in that period.
SLOW AND SLOWER
Markit comments on its flash China PMI survey:
Further downturn signalled as flash PMI drops to near post-crisis low in July
The headline PMI fell from 48.2 in June to 47.7, its lowest since last
August and signalling a third successive monthly deterioration of business conditions in China’s vast goods-producing sector. Since early-2009, the lowest reading of the PMI has been 47.6.
The survey therefore adds evidence to suggest that the rate of growth of the world’s second largest economy has slowed further at the start of the third quarter, with growth having already weakened to an annual pace of 7.5% in the second quarter, which was the second-weakest pace seen for four years.
The slowdown is also not confined to the goods producing sector. The manufacturing PMI’s sister survey showed service sector growth slowing to near stagnation in the second quarter, indicating that the sector was undergoing one of the softest patches seen in the seven-and-a-half year history of the survey.
Looking at the details, the flash data showed output falling for a second successive month, dropping at the fastest rate since last October. New orders fell for the third straight month, likewise seeing the rate of decline accelerating, hitting the fastest since August of last year. Worryingly, backlogs of work fell to the greatest extent since January 2009, down for a third successive month.
The acceleration in the rate of loss of orders was driven primarily by the domestic market. New export orders also fell, down for a fourth month running, but the rate of decline was the slowest since May.
Move indicates leadership’s concern about slowdown
(…) The “mini stimulus”, though limited in size, could herald more policy moves to prop up growth. The government will eliminate taxes on small businesses, reduce costs for exporters and line up funds for the construction of railways. (…)
First, it has temporarily scrapped all value-added and operating taxes on businesses with monthly sales of less than Rmb20,000 ($3,250). It said the tax cuts, which go into effect at the start of August, would help more than 6m enterprises which employ tens of millions of people
Second, the government pledged to simplify approval procedures and reduce administrative costs for exporting companies. Among the various moves, it said it would temporarily cancel inspection fees for commodities exports and streamline customs inspections of manufactured goods.
Third, it said it would create more financing channels to ensure that the country can fulfil its ambitious railway development plans. More private investors will be encouraged to participate and new bond products will be issued.
SoGen on why China matters (via Business Insider)
“China is a major source of global demand,” with imports equivalent to 30% of GDP, Societe Generale Michala Marcussen points out in a new report. So a hard landing would have a major impact on economies that are reliant on China for their exports.
“Drawing on different studies, mainly from the IMF and the OECD, we estimate that the impact of the trade channel from the type of hard landing in China described in the previous section would cut GDP growth by around 4.5pp in Taiwan, 2.5pp in South Korea and Malaysia, 1.2pp in Australia, 0.6pp in Japan, 0.2pp in the euro area and 0.1pp in the US. For the global economy ex-China, the trade channel effects would bring about a reduction of around 0.6pp to GDP growth.”
There’s also the impact of the decline in investment, since “investment has significantly higher import content than consumption, most notably through commodities and machine tools.”
Here’s a look at the countries that would be hit the hardest by a slowdown in China:
Consumer spending helps buoy economy
The economy expanded a seasonally adjusted 1.1 per cent in the second quarter from the first three months of the year, the Bank of Korea said on Thursday. That marked its strongest performance since the first quarter of 2011. Compared with the same period a year earlier, gross domestic product grew 2.3 per cent. (…)
Construction contributed strongly to the growth, rising 3.3 per cent quarter-on-quarter. However, a decline of 0.7 per cent in facilities investment – particularly transport equipment – reflected fragile business confidence. Private consumption grew 0.6 per cent after a 0.4 per cent fall in the previous quarter, while exports of goods and services increased 1.5 per cent.
The central bank predicts full-year growth of 2.8 per cent, rising to 4 per cent in 2014. (…)
In its monthly report, the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, Wednesday said the volume of exports and imports fell 0.3% from April, having risen 1.3% in that month.
The decline in trade volumes was spread across the globe, although was sharpest in Central and Eastern Europe.
The CPB also provides a measure of world factory output, which was unchanged in May, having risen 0.2% in April.
Emerging economies now seem to be underperforming
Latest data from the CPB show that growth in global industrial production (IP) is on track to decelerate a bit in the second quarter. That’s mostly due to the worst IP growth in emerging economies since 2009, in sharp contrast with the uptick observed in advanced economies
(the latter due to the rebound in economic activity in Europe but primarily in Japan).
So much so that, as today’s Hot Charts show, the gap in IP growth between advanced and emerging economies in the second quarter was the biggest since the Asian crisis. And based on Markit’s July manufacturing purchasing managers’ indices, which showed a further worsening in China, it seems that advanced economies could continue to
outperform emerging ones in Q3 as well.
The eurozone despite its structural problems seems to be slowly
returning to growth as evidenced by July’s above-50 manufacturing PMI, Japan’s recovery is set to continue buoyed by loose policies from a government emboldened by its absolute control of parliament, while the US is set to bounce back after a temporary sequester-related setback in Q2. In the meantime, China’s rebalancing act is biting into growth, while other emerging economies continue to adjust not only to the loss of competitiveness relative to the yen, but also to the recent run up in bond
yields. (NBF Financial)
Bond Investors Look to Cash Investors are cashing out of bonds but remain hesitant to plunge into stocks even as they reach new highs, preferring to buy money-market mutual funds despite their low returns
Investors withdrew an estimated $43 billion from taxable bond mutual funds last month, the largest-ever monthly outflow, according to the Investment Company Institute. (…)
But in a twist, the main beneficiary of the rush out of bonds has been money-market funds, which are cash-like investments that appeal to safety-minded investors.
Assets in these portfolios increased for the fourth week in a row in the week ended July 17, rising $8.5 billion to $2.6 trillion, ICI data show. That left money-market funds, which pay barely more than simply holding dollars, with the most cash since early April. (…)
An estimated $6.3 billion came out of U.S. stock mutual funds in June. But as markets stabilized this month, investors moved $7 billion back into U.S. stock mutual funds in the first two weeks of July, according to the ICI. (…)
Since the financial crisis, investors have plowed money into bond funds and pulled out of U.S. stock funds. Some $947 billion made its way into bond funds from the start of 2008 through the end of last year, compared with an outflow of $548 billion for U.S. stocks funds, according to ICI data. (…)