There was improvement in the Markit’s June US manufacturing and services PMI but were a bit below expectations. Manufacturing rose to 49.6 from 39.8 while services grew to 46.7 from 37.5. Again, direction not degree is the driver here as things reopen. With this composite index still below 50 at 46.8, it reflects a situation where “the overall pace of decline eased among goods producers and service providers” according to Markit rather than reflecting an expansion at least right now.
Markit estimates a full year 2020 GDP decline of 8% and “The coming months will therefore see the focus turn to just how much recovery momentum the economy can muster to recoup this lost output.” The economy will naturally improve the more businesses reopen, employees get their jobs back and people spend again. But, the caveats in this current bizarre world we’re in will still surround us in coming quarters. To this Market said “Any return to growth will be prone to losing momentum due to persistent weak demand for many goods and services, linked in turn to ongoing social distancing, high unemployment and uncertainty about the outlook, curbing spending by businesses and households. The recovery could also be derailed by new waves of virus infections.”
My bottom line for all this data remains the same. We shutdown, economic activity collapsed, we reopen, business activity bounces back. The difference in what was and what will be is now the big question that will hopefully be answered in coming months.
MARKIT’S MFR’G AND SERVICES PMI
New home sales in May, measuring contract signings thus much more up to date than existing home sales, totaled 676k, 36k more than expected but April was revised down by 43k to 580k so call it a push relative to expectations.
Regionally, we should not be surprised that sales down South and out West saw the best m/o/m increases in absolute numbers. The median home price was up 1.7% y/o/y but this figure is very volatile month to month due to price mix. As the number of homes for sale shrunk, months’ supply fell to 5.6 from 6.7.
Bottom line, smoothing out the difficult few months for the economy has the 3 month average at 623k vs the 6 month average of 682k and the 12 month average of 693k. With the supply of existing homes low and families looking to move out of cities to the burbs, we know the level of demand for new homes has been pretty good. The key question for housing though is after this sort of pent up demand gets satiated, will the level of employment and wages reassert itself as the main driver of the market. The other dynamic for sure will be the spending behavior of millennials as they are the key demographic group to watch for the housing market in the years to come.
Also of note, see the chart of lumber below and the recent spike
NEW HOME SALES