New home sales in July totaled 654k, well above the estimate of 580k and up from 582k in June. This is the best pace of sales in this recovery and was mostly driven by a 61k home sale increase in the South. The West and Midwest were flat and the Northeast rose by 10k. With the rise in sales, months’ supply fell to 4.3 from 4.9, the lowest since 2013. Fortunately for those that have been priced out of the market over the past six years, there was an improvement in the rate of sales of homes priced less than $400k with a particular increase in those priced below $300k. This mix shift lowered the median home price by 5.1% sequentially and down .5% y/o/y. As for the industry, the 654k annualized run rate in August puts it only 8.5% below its 25 year average. Getting there.
Bottom line, the highest level of home sales down South since 2007 led the way. Why there in particular? I don’t know. We see existing home sales tomorrow and hopefully we can build a consistent theme for the industry because mortgage applications to buy a home last week was at a 6 month low. We know for a while the ever rising cost of renting was an invite to builders to build lower priced homes and hopefully the July data is a sign that they are stepping up and providing them. The demand is there when rents are rising by 4-5% every year. On the other hand, this doesn’t change what is likely a secular down shift in the homeownership rate which is at the lowest level since 1965 as of Q2.
The Markit US manufacturing index for August fell to 52.1 from 52.9 in July. The estimate was 52.6 and the average year to date is now 51.6. The internals were mixed. New orders slowed but seemed to be domestically based because export sales “increased at the fastest pace in 23 months.” Employment growth slowed to a four month low. Prices paid slowed to a five month low while prices received were unchanged after three months of gains. Bottom line, after a weak first half of the year, the modest bounce in July and August in this index points to a rebound in Q3. That said, this index is barely above 50 and averaged 53.7 last year and 55.9 in 2014.
After a negative print in the NY manufacturing survey (but internals were ok) and a slightly positive print in the Philly region (where the internals were not ok), the Richmond manufacturing index for August fell a sharp 21 pts to -11.0. The estimate was +6.0. This is the worst number since January 2013. New orders, backlogs, and shipments were deeply negative. Employment was positive and up 1 pt and interestingly wages jumped 7 pts to the most since May 2014. The six month outlook was much better than the current conditions. Bottom line, notwithstanding the stabilization in manufacturing over the past few months, the sector is seeing little growth. The August estimate for the national ISM survey is 52.2.
With the markets focus mostly on new home sales of the data points seen today, the US Treasury didn’t blink on the upside print. Maybe the -11 number in Richmond manufacturing was too weak to be ignored as was the mediocre Markit figure.
Japan’s index for August was up a touch at 49.6 from 49.3 in July. It’s below 50 now for a 6th straight month which also coincides with the yen move from 120 to 100. Markit said “the latest batch of PMI data gave a mixed picture overall. Encouragingly, output expanded for the first time in six months (albeit marginally), while companies also saw softer reductions in total new work and export sales. However, the latest survey also registered a slight drop in employment for the first time since last September. Furthermore, relatively weak client demand alongside a strong yen prompted firms to cut their selling prices at the sharpest rate since October 2012 as part of efforts to attract new business.” With the yen hovering just above 100, the Nikkei cannot get out of its own way EVEN WITH ALL THE ETF BUYING by the BoJ and it closed down by .6%. The 10 yr JGB yield was down by 2 bps at -.08 but still remains 20 bps off its extreme low of four weeks ago. The Topix bank index was down by 1.4%.
The Eurozone manufacturing and services composite index for August at 53.3 was up a hair from the 53.2 seen in July and that was a touch above the estimate of 53.1. The components were mixed though as services rose slightly while manufacturing was down a bit. Interestingly it was an upside surprise to the French data that drove the headline beat relative to the estimates as Germany’s composite index missed the forecast. Markit said “With the index only slightly above the average seen throughout the year to date, growth in Q3 is likely to be similar to that seen in the first half of this year.” They did see that “a slowing in manufacturing order book growth and a dip in services optimism led to a weakened rate of hiring and suggested that growth could fade in coming months, however.” What is also apparent in the data is no real impact yet, if any, from the UK vote and a regional economy that continues to hang in there, albeit at modest growth.
As we approach Yellen’s speech on Friday which will single handedly determine how markets close by week’s end, keep eyes on the yield grab beneficiaries of utilities, REIT’s and Telecom. Off the July highs in them, the utilities are lower by 5%, the REIT’s are down by 3.8% and telecom has sold off by 8.3%. These declines all exceed the dividend yields that were locked in when purchased at the highs.