A preliminary report about the U.S. manufacturing sector for this month showed business conditions continue improving, hitting a 40-month high, while a separate one on existing home sales revealed a decline for the second straight month amid higher prices and a supply shortage.

The Flash U.S. Manufacturing Purchasing Manager’s Index from the financial information services provider IHS Markit rose to 55.9 in February, up from 55.5 the month before as it pointed to the fastest improvement in overall business conditions since October 2014. A reading above 50 indicates manufacturing is expanding.

A sharp and accelerated rise in incoming new business helped to boost the headline PMI in February, while manufacturing production growth was little-changed since January. The latest rise in new order volumes was the steepest for around three-and-a-half years, which survey respondents attributed to greater sales to domestic clients alongside further export gains.

Improving manufacturing business conditions also reflected a robust rise in payroll numbers and sustained pre-production stock building in February. Meanwhile, there were signs of stretched supply chains, with delivery times from vendors lengthening for the 14th month running.

Greater demand for inputs and rising commodity prices contributed to a sharp rise in average cost burdens across the sector. The latest increase in manufacturing input prices was the fastest since December 2012. Efforts to alleviate pressure on operating margins led to the steepest rate of factory-gate price inflation for just over four years in February.

“Business activity growth accelerated markedly in February, suggesting the economy is growing at its fastest pace for over two years,” said Chris Williamson, Chief Business Economist at IHS Markit.

He said this report, along with surveys, are indicative of the U.S. gross domestic product rising at an annualized rate of 3%. This GDP expanded at a rate of 2.6% in the final quarter of 2017, down slightly from above 3% in the second and third quarters of 2017, according to the Commerce Department.

Existing Home Sales Slowest since September

Meantime, a separate report showed existing-home sales slumped for the second consecutive month in January and experienced their largest decline on an annual basis in over three years, according to the National Association of Realtors (NAR).

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, sank 3.2% in January to a seasonally adjusted annual rate of 5.38 million from a downwardly revised 5.56 million in December 2017.

After last month’s decline, sales are 4.8% below a year ago, marking the largest annual decline since August 2014 at 5.5%, and at their slowest pace since last September.

Lawrence Yun, NAR chief economist, said January’s retreat in closings highlights the housing market’s glaring inventory shortage to start 2018.

“The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” he said. “While the good news is that Realtors in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January’s pace. It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”

The median existing-home price for all housing types in January was $240,500, up 5.8% from January 2017. January’s price increase marks the 71st straight month of year-over-year gains.

“The gradual uptick in wages over the last few months is a promising development for the housing market, but there’s risk these income gains could be offset by the recent jump in mortgage rates,” said Yun. “That is why the pace of added new and existing supply in the months ahead is worth monitoring. If inventory conditions can improve enough to cool the swift price growth in several markets, most prospective buyers should be able to absorb the higher borrowing costs.”

Single-family home sales, the largest share of the market, declined 3.8% to a seasonally adjusted annual rate of 4.76 million in January from 4.95 million in December, and are now 4.8% below the 5 million pace a year ago.

Existing condominium and co-op sales rose 1.6% to a seasonally adjusted annual rate of 620,000 units in January, but are still 4.6% below a year ago. The median existing condo price was $231,600 in January, which is 7.1% above a year ago.

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Evan Lockridge

Evan Lockridge

Former Business Contributing Editor

Trucking journalist since 1990, in the news business since early ‘80s.

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