The underlying fundamentals of the U.S. economy are better than, or at least nowhere near as bad as, the panic that set into Wall Street starting late last week and extended into Monday, according to several newly released reports.
The U.S. Commerce Department on Tuesday said July sales of newly built, single-family homes rose 5.4% from the month before, to a seasonally adjusted annual rate of 507,000 units.
This marks a big turnaround from a 7.7% drop in June from May. Home sales are 21.2% higher through the first seven months of this year than to the same time in 2014.
“Today’s report is in line with other government data and improving builder sentiment and shows a gradual but consistent housing recovery,” said National Association of Homebuilders Chief Economist David Crowe. “As job growth and consumer confidence continue to strengthen, the housing market should make additional gains this year.”
The report follows a separate one from last week showing existing-home sales steadily increased for the third consecutive month in July. Stubbornly low inventory levels and rising prices, rather than any larger economic issues, are likely to blame for sales to first-time buyers falling to their lowest share since January, 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 2% to a seasonally adjusted annual rate of 5.59 million in July from a downwardly revised 5.48 million in June.
Sales in July remained at the highest pace since February 2007. They have now increased year-over-year for 10 consecutive months and are 10.3% above a year ago.
Lawrence Yun, NAR chief economist, said the increase in sales in July solidifies what has been an impressive growth in activity during this year's peak buying season.
"The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices down the road is encouraging more households to buy now," he said. "As a result, current homeowners are using their increasing housing equity towards the down payment on their next purchase."
Single-family home sales increased 2.7% to a seasonally adjusted annual rate of 4.96 million in July, the highest since February 2007, and are now 11% above the pace from a year ago.
Consumer Confidence Jumps, Leading Indicators Slip
Also on Tuesday, the private research group The Conference Board reported its Consumer Confidence Index, which had declined sharply in July, rebounded in August.
The index now stands at 101.5, up from 91 in July. The Present Situation Index increased from 104 last month to 115.1 in August, while the Expectations Index improved to 92.5 from 82.3 in July.
“Consumers’ assessment of current conditions was considerably more upbeat, primarily due to a more favorable appraisal of the labor market,” said Lynn Franco, director of economic indicators at The Conference Board. “The uncertainty expressed last month about the short-term outlook has dissipated and consumers are once again feeling optimistic about the near future. Income expectations, however, were little improved.”
The survey was conducted before the big drop on Wall Street late last week and into Monday.
This report came in the wake of one a few days earlier from the group that showed its Leading Economic Index for the U.S. declined 0.2% in July to 123.3, following a 0.6% increase in June, and a 0.6% increase in May.
The index is used to predict where the American economy is headed in the next three to six months.
“The U.S. LEI fell slightly in July, after four months of strong gains. Despite a sharp drop in housing permits, the U.S. LEI is still pointing to moderate economic growth through the remainder of the year,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board.
Service, Manufacturing Activity Throttle Back
Meantime, on Tuesday a first look at how the nation’s service sector is performing shows it losing momentum this month, hitting its second lowest level since January.
The Flash U.S. Services Purchasing Managers’ Business Activity Index from the financial information services provider Markit fell from 55.7 in July to 55.2 this month, but is still well above the neutral 50 threshold.
Companies that reported a rise in business activity generally cited improving U.S. economic conditions and rising new business volumes. August data, nonetheless, pointed to a marked slowdown in new business growth from the three-month high recorded in July. The latest increase in new work received by service providers was the slowest since January and softer than the average since the series began in late 2009. Some survey respondents commented on more subdued business sentiment and cautious spending patterns among clients.
“August data signals a renewed slowdown in U.S. service sector growth, and this comes hot on the heels of a 22-month low recorded by the latest flash Manufacturing PMI survey,” said Tim Moore, senior economist at Markit. “Moreover, service providers’ new business volumes expanded at the slowest pace since January, suggesting that underlying momentum within the U.S. economy had shifted down a gear even before the recent global market turmoil and escalating worries about China’s growth outlook gathered on the horizon.”
Meantime, U.S. manufacturers indicated a renewed loss of momentum during August in a report last Friday, with output, new business and payroll numbers all increasing at a slower rate than in the previous month.
As a result, the headline seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index dipped from 53.8 in July to 52.9 in August. That's still above the neutral 50 threshold, but the lowest since October 2013.
The main factor weighing on the headline index was a slowdown in manufacturing output growth from the three-month high recorded during July. Also, the latest rise in production volumes was the weakest since the weather-related slowdown recorded in January 2014. Some survey respondents cited a cyclical slowdown in new business growth, as well as heightened uncertainty regarding the demand outlook in August.
The survey indicated a solid expansion of overall new order volumes received by manufacturers, but the rate of growth moderated slightly since July. Subdued export sales remained a drag on new business intakes in August. Reflecting this, new work from abroad decreased for the fourth time in the past five months, with a number of firms attributing the decrease to competitive pressures related to the stronger currency exchange rate. There were also reports that weak capital spending among energy sector clients continued to weigh on some manufacturers’ order volumes.
“August’s survey highlights a lack of growth momentum and continued weak price pressures across the U.S. manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September,” said Moore. “With the headline PMI swiftly losing ground after a modest rebound during July, the latest figure now points to the weakest overall pace of manufacturing growth for almost two years.
According to survey respondents, the strong dollar continued to put pressure on export sales and competitiveness, while heightened global economic uncertainty appeared to have dampened client spending both at home and abroad. Alongside this, manufacturers of investment goods widely cited growth headwinds from the slump in capital spending across the energy sector.