Markit’s measure of US manufacturing and services saw m/o/m declines for April. Its manufacturing index fell .5 pts to 52.8, down for the 3rd straight month and it’s below the October, pre election level for a 2nd straight month. It touched 53.4 in October. The services index was down by .3 pts to 52.5 and it’s down also for a 3rd straight month and also below the October, pre election print of 54.8. Combining the two puts the composite index at the weakest level since September. At least in this index, the Trump confidence trade is over but there is still hope in the forward looking component.
Internally, employment fell to the lowest level since February 2010 led by a slowdown in service hiring which is at its weakest level since July 2010. Input price inflation hit its highest level since June 2015 “at the same time, prices charged…increased only marginally and at the slowest pace since November 2016.” A margin hit is the difference.
Within services and off the one year low seen last month, new orders rose slightly while backlogs fell for a 3rd month. There was some optimism for the next 12 months as this component rose to a 3 month high. With manufacturing, employment was up a touch from the 7 month low seen in March. Inventories fell. The reflation trade on Wall Street may have taken a breather but as I keep highlighting, industrial commodity prices are still near 2 year highs and Markit said this: “April data signaled a sharp and accelerated rise in average cost burdens across the manufacturing sector. The rate of input cost inflation was the fastest since December 2013, which survey respondents linked to rising commodity prices (particularly metals). Meanwhile, pressure on margins from higher input costs contributed to the strongest increase in factory gate charges for almost 2 ½ yrs.”
Bottom line, for those of you looking for a sharp Q2 GDP snapback, this should not encourage you but there is some optimism in the survey about the months to come. Markit has a 1.7% Q1 GDP forecast and they are currently estimating 1.1% in Q2. They said “The survey responses indicate that some froth has come off the economy since the post election bounce seen at the end of last year. However, with inflows of new business picking up slightly in April and business optimism about the year ahead also brightening, there’s good reason to believe that growth could revive again in coming months.” Let’s hope so and it’s why the pressure on the White House to deliver tax reform in 2017 is so urgent. At the same time, confidence reads are coming back to earth because again, that’s where reality is right now on the economy.
Existing home sales in March, likely capturing contract signings mostly in January and February, totaled 5.71mm, about 100k more than expected and up from 5.47mm in February. This is the highest level in the recovery and the best print since February 2007. It’s also up 5.9% y/o/y averaging out 3 months. For perspective, we’ve seen the current level of sales back in ‘02 and the bubble peak was 7.25mm in ’05. Months’ supply remained anemic at 3.8 which is just off the cycle low of 3.5 seen in January. The median price was up 6.8% y/o/y which is great if you own but sucks if you want to buy. Pricing out the first time buyer is a key reason why they are stuck in the low 30% level as a percent of total purchases and this month at 32% which has been trend.
Bottom line, even with the price gains well above inflation, still low mortgage rates and a historically low unemployment rate (even the U6) combined with rising rents as competition drove the sales gains. Today’s data though is somewhat dated as the last contract signed to make it into this figure was likely back in February when the winter weather was so nice. The dearth of inventories is still a problem but the NAR said “there was enough of a monthly increase in listings in March for sales to muster a strong gain. Sales will go up as long as inventory does.” That of course assumes that issues in housing is only supply related. We can argue that there are issues on the demand side too with the greater desire to rent whether by choice or due to financial constraints. Housing stocks don’t typically trade much off this number again because of the dated nature of the print.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.