Fleet Management

Economic Watch: New Home Sales Plunge, Manufacturing Rebounds

October 26, 2015

By Evan Lockridge

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Sales of newly built, single-family homes fell to their lowest level since last November, while a separate report shows the first improvement in the nation’s manufacturing sector in five months.

A U.S. Commerce Department report released Monday shows new home sales fell 11.5% in September to a seasonally adjusted annual rate of 468,000 units. The monthly drop was the largest since July 2013.

“It is not surprising to see sales pull back in September following a strong August reading, especially after a few months of weak job creation,” said National Association of Home Builders Chief Economist David Crowe. “However, new-home sales year-to-date are up 17.6% compared to the same period of 2014, and we expect the market to continue improving at a gradual but steady pace for the rest of year.”

Regionally, new-home sales were down across the board. Sales fell 61.8% in the Northeast, 8.3% in the Midwest, 8.7% in the South and 6.7% in the West.

“Despite this monthly drop, our members continue to tell us that housing is moving in the right direction,” said Tom Woods, chairman of NAHB. “Consumers may have simply been reacting to soft job numbers.”  

Meantime, a separate report from NAHB says steady employment and economic growth, pent-up demand, affordable home prices and attractive mortgage rates will keep the housing market on a gradual upward trend in 2016.

That’s good news for trucking company who haul everything that goes into building new homes to those that move the goods of people who purchase them.

“This recovery is all about jobs,” said Crowe. “If people can get good jobs that pay decent incomes, the housing market will continue to move forward.”

However, persistent headwinds related to shortages and availability of lots and labor, along with rising materials prices, are impeding a more robust recovery.

Manufacturing Shows New Life

Meantime, a separate, preliminary report from Friday shows U.S. manufacturers indicated a rebound in overall business conditions during October, according to the financial information services provider Markit.

Its Flash U.S. Manufacturing Purchasing Managers’ Index increased to 54.0, up from 53.1 in September and well above the neutral 50.0 threshold.

The latest reading pointed to the fastest upturn in business conditions since May.

The report indicated a robust and accelerated expansion of production levels across the manufacturing sector, according to Markit. The latest rise in output was the fastest since March, which brought the pace of expansion back in line with the post-crisis average.

Survey respondents mainly cited improving demand from domestic markets and competitive pricing strategies. At the same time, global economic uncertainty and lower energy sector expenditures were reportedly factors acting as a brake on manufacturing growth in October.

Improved sales patterns and rising production requirements contributed to a rebound in job creation from the 27-month low recorded during September. Manufacturers signaled the sharpest increase in payroll numbers since July, but the pace of staff hiring was still weaker than the post-crisis average. They also remained cautious in terms of their inventory holdings and input buying during October.

“The positive start to the fourth quarter suggests the economy may be picking up speed again after slowing in the third quarter, for which the PMI surveys pointed to annualized gross domestic product growth of 2.2%,” said Chris Williamson, chief economist at Markit. “The faster growth of export sales is particularly good news and will help to alleviate fears that the U.S. economy is being hurt by the stronger dollar and slower growth in China."

He said a lighter mood in the goods-producing sector was perhaps best reflected in the rebound in job creation, which points to manufacturers having increased confidence that the current upturn will be sustained.

“However, worries about the dollar’s strength, export weakness and the recent downturn in the energy sector mean that business optimism and employment gains remain weaker than seen earlier in the year,” Williamson said.

The more closely watched manufacturing index for October from the Institute for Supply Management won’t be released until Nov. 2.

In September it fell 0.9% of a percentage point from the August reading of 51.1. This was the lowest reading since May 2013, but it still showed signs the nation’s manufacturing sector is growing, just more slowly than it was the previous month.

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