Economic Watch: Indicators, Existing Home Sales, Manufacturing Jump
August 21, 2014
The latest measure on the condition of the U.S. economy and where it's heading shows improvement again, according to the private research group The Conference Board.
Its Leading Economic Index increased 0.9% in July to 103.3, following a 0.6% increase in June and a 0.6% increase in May.
“The LEI improved sharply in July, suggesting that the economy is gaining traction and growth should continue at a strong pace for the remainder of the year,” said Ataman Ozyildirim, economist at The Conference Board. “Although housing has been one of the weakest components this year, the sharp gain in building permits helped boost the LEI in July. Financial markets and labor market conditions have also supported recent gains, but business spending indicators remain soft and their contribution marginal.”
The performance was better than a consensus forecast by economists.
“Although retail sales were a little disappointing, hiring and industrial activity improved," said Ken Goldstein, economist at The Conference Board. "July’s increase in the LEI, coupled with its accelerating growth trend, points to stronger economic growth over the coming months."
A separate report shows existing-home sales increased in July to their highest annual pace of the year, according to the National Association of Realtors.
Existing-home sales rose to a seasonally adjusted annual rate of 5.15 million in July, up 2.4% from a slight downwardly revised 5.03 million in June. Sales are at the highest pace of 2014 and have risen four consecutive months, but remain 4.3% below the level from last July, which was the peak of 2013.
Lawrence Yun, NAR chief economist, said sales momentum is slowly building behind stronger job growth and improving inventory conditions.
“The number of houses for sale is higher than a year ago, and tamer price increases are giving prospective buyers less hesitation about entering the market,” he said. “More people are buying homes compared to earlier in the year and this trend should continue with interest rates remaining low and apartment rents on the rise.”
Yun did warn that affordability is likely to decline in upcoming years. “Although interest rates have fallen in recent months, median family incomes are still lagging behind price gains, and mortgage rates will inevitably rise with the upcoming changes in monetary policy,” he said.
Single-family home sales increased 2.7% but remain 4.2% below the pace a year ago. Existing condominium and co-op sales remained unchanged in July from June and are 4.8% below the pace a year ago.
Regionally, July existing-home sales in the Northeast were at the same level as the month before but are 9.9% below a year ago. In the Midwest, existing-home sales increased 1.7%, but remain 4.7% below July 2013. Existing-home sales in the South rose 3.4% and are now up 0.5% from July 2013, while in the West they climbed 2.6% in July but remain 8.6% below a year ago.
A third economic indicator, the Flash U.S. Manufacturing Purchasing Managers’ Index from the financial information services provider Markit, registered 58 in August, up sharply from 55.8 in July and the highest reading for over four years.
The index is designed to signal changes in prevailing business conditions in the U.S. manufacturing sector. Readings above 50 signal an improvement in business conditions, while below 50 indicates deterioration.
It shows a further steep rise in production levels across the manufacturing sector. The rate of output growth picked up slightly since July and was one of the fastest seen over the past four years. Survey respondents mainly cited improving domestic economic conditions and an associated upturn in client spending.
Manufacturers also benefitted from a solid rebound in new export orders in August, with the pace of expansion picking up from July’s six-month low, while the latest increase in new business from abroad was the steepest for three years.
“August’s survey delivers further evidence that robust manufacturing growth momentum has been sustained through the third quarter, with overall business conditions improving at the fastest pace for over four years,” said Tim Moore, senior economist at Markit.
“Overall, with job hiring gathering momentum and input buying expanding at the sharpest pace for at least seven years, it seems U.S. manufacturers are increasingly confident that the recovery is firmly back on track and are gearing up for a sustained rebound in production schedules over the months ahead.”