The April Philly non-manufacturing activity index, so call it their services PMI, fell to -22.8 from -12.8. The Philly Fed said the responses “suggest continued weakening in nonmanufacturing activity in the region. The indexes for general activity at the firm level, sales/revenues, and new orders all declined. Both price indexes remain somewhat elevated, and the respondents continue to anticipate growth over the next six months at their own firms.” That last point said, expectations for broad business activity weakened further.
The important ‘special question’ was on wages and compensation. “More than 49% of the firms indicated wages and compensation costs had increased over the past three months, 46% reported no change” with the balance seeing decreases. “Most of the firms reported not adjusting their 2023 budgets for wages and compensation since the beginning of the year. Meanwhile 27% of the firms indicated they are planning to increase wages and compensation by more than originally planned, and 9% of the firms indicated they are planning to increase wages and compensation sooner than originally planned.”
Broadly on pricing, “The firms still expect higher costs across most categories of expenses in 2023, and the median expected changes were in line with or lower than expectations from when this question was last asked in January. The firms expect total comp (wages plus benefits) to increase by a median of 4-5%, lower than the 5-7.5% median increase expected in January.”
Bottom line, S&P Global told us their national services PMI further improved while this figure says the opposite. On pricing, including wages/benefits, the trajectory is for slower price pressure after the sharp increases seen over the past few years. That should not be a surprise as the inflation was unsustainable at the pace seen. But the slowdown should not be the new story. The new focus should be where things settle out at, which we don’t yet know. Does inflation magically go back to 1-2% on a SUSTAINABLE basis next year or are we in something more structural like 3-4%. I believe the latter. Are we going back to wage gains of 2.5% like we saw in the 20 yrs pre Covid or is 4-5% the new trend. I believe the latter.
The S&P CoreLogic home price index in February rose 2.1% y/o/y which is the slowest pace since 2012. I believe this is a good thing as first time buyers need some relief here. Understand that home prices are up 38% since 2019, with the recent m/o/m pullback and with double the level of mortgage rates as we know. The sunbelt cities continue to lead the price gains with Miami, Tampa, Atlanta and Charlotte at the top of the price gain list. San Francisco, Seattle, San Diego and Portland are at the bottom.
Home Price index
New home sales in March totaled 683k, 50k more than expected while February was revised down by 17k to 623k. A jump in sales in the Northeast and the West led the way with months’ supply slipping to 7.6 from 8.4. The volatile median home price was up 3.2% y/o/y.
Bottom line, big builders are taking share from smaller ones who are having more difficulty accessing credit and with the whole industry seeing better sales than feared because of the dearth of existing homes for sale.
The Richmond manufacturing index joined Philly and Dallas with under zero prints for April. Their index dropped to -10 from -5. That’s less than zero for the 6th month in the past 7. Manufacturing remains in a recession so far in April, though S&P Global said at best it flatlined.
The April Conference Board’s Consumer Confidence index fell to 101.3 from 104 and there was no change expected. A 6 pt drop in the Expectations component was the main culprit, especially the employment figure, as the Present Situation was up 2 pts m/o/m. One yr inflation expectations were up 6.2% vs 6.3% in March and 6.2% in February. It was though 7.5% one yr ago.
There was some slight improvement in the answers to the labor market questions but after a drop last month. Of note though, and dragging down the Expectations component as stated, those expecting ‘More Jobs’ fell by 3 pts to 12.5, the least since early 2016. Those expecting higher income fell .5 pt but rose by 1.8 pts last month.
Spending intentions weakened across the board with autos, homes and major appliances. For autos it fell to match the lowest since November 2021. For homes, intentions match the lowest since last July. For a major appliance, go back to 2011 to find a lower level. Intentions to take a vacation softened as well.
Bottom line from the Conference Board, “Consumers became more pessimistic about the outlook for both business conditions and labor markets. Compared to last month, fewer households expect business conditions to improve and more expect worsening of conditions in the next six months. They also expect fewer jobs to be available over the short term.” I’ll add, there is this constant debate over whether we’re in or on the cusp of or maybe could avoid a recession. Regardless, it certainly feels like and reads like it all feels the same.
Consumer Confidence
Expecting More Jobs
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