Economic Watch: Manufacturing Starts Strong, Home Sales up Last Year

Manufacturers reported a strong start to 2018, with production volumes and incoming new work both rising at faster rates than seen at the end of last year. A separate report showed while existing home sales improved last year, they ended 2017 on a lower note.

The preliminary IHS Markit Flash U.S. Manufacturing Purchasing Managers Index (PMI) for January rose to 55.5 from 55.1 in December. (A reading above 50 indicates expansion while below 50 signals contraction.)

The report noted export sales expanded to the largest degree since August 2016 as more favorable demand conditions encouraged another robust rise in employment numbers, although the rate of job creation eased slightly from December’s 39-month peak.

The latest reading pointed to the sharpest improvement in manufacturing business conditions since March 2015.

Reports from survey respondents suggested that adverse weather conditions and stretched operating capacity led to longer delivery times from suppliers at the start of the year.

“Manufacturing is faring especially well, in part thanks to the weaker dollar, providing an important spur to the economy at the start of the year,” said Chris Williamson, chief business economist at IHS Markit.

A final report on January manufacturing from IHS Markit, as well as the more closely watched report on the sector from the Institute for Supply Management, are set for release on Feb. 1.

Existing Home Sales Slip after Strong Year

A separate report on the existing home sales market showed 2017 was the best in 11 years, even though December sales declined, according to the National Association of Realtors.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.1% in 2017 to a 5.51 million sales pace, the highest level since 2006.

In December, existing-home sales slipped 3.6% to a seasonally adjusted annual rate of 5.57 million from a downwardly revised 5.78 million in November.

Lawrence Yun, NAR chief economist, said the housing market performed remarkably well for the U.S. economy in 2017, with substantial wealth gains for homeowners and historically low distressed property sales.

“Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand,” said Yun. “At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.”

The median existing-home price for all housing types in December was $246,800, up 5.8% from December 2016. This marked the 70th straight month of year-over-year gains.

“The lack of supply over the past year has been eye-opening and is why, even with strong job creation pushing wages higher, home price gains doubled the pace of income growth and were even swifter in several markets,” said Yun.