A first look at the nation’s manufacturing sector this month shows conditions have hit a nine-month low, while home sales have roared back amid near-term expectations the overall economy will continue with a moderate expansion.
The seasonally adjusted Flash U.S. Manufacturing Purchasing Mangers’ Index (PMI) from financial information services provider IHS Markit fell from a final May level of 52.7 to a preliminary reading of 52.1 in June.
While a level above 50 indicates manufacturing activity is expanding, this is the slowest pace since last September.
The weaker PMI reading largely reflected softer rates of output and new business growth in June, which more than offset stronger contributions from job creation and inventory building, according to the report.
According to Chris Williamson, chief business economist at IHS Markit, the U.S. economy is ending the second quarter on a softer note.
“The average expansion seen in the second quarter is down on that seen in the first three months of the year, indicating a slowing in the underlying pace of economic growth,” he said. “While official GDP [gross domestic product] data are expected to turn higher in the second quarter after an especially weak start to the year, the relatively subdued PMI readings suggest there are some downside risks to the extent to which GDP will rebound.”
A final reading on June will be out in early July, along with the more closely watched monthly survey of purchasing managers from the Institute for Supply Management.
New, Existing Home Sales Come Back to Life
This report came as separate ones showed the market for both new and existing homes has turned around.
New home sales in May increased 2.9% from the month before to a seasonally adjusted annual rate of 610,000 while the April level was revised upward, according to the Commerce Department.
When May is compared to the same time a year ago, new home sales increased 8.9%.
“This month’s report is in line with our forecast, and consistent with solid builder confidence readings,” said National Association of Homebuilders Chief Economist Robert Dietz. “With more consumers entering the market, further job growth and tight existing home inventory, the new home sector should continue to expand.”
This followed a report from earier showing existing-home sales rebounded in May following a notable decline in April, 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, climbed 1.1% to a seasonally adjusted annual rate of 5.62 million in May from a downwardly revised 5.56 million in April. Last month's sales pace is 2.7% above a year ago and is the third highest over the past year.
According to Lawrence Yun, NAR chief economist, sales activity expanded in May as more buyers overcame the increasingly challenging market conditions prevalent in many areas.
"The job market in most of the country is healthy and the recent downward trend in mortgage rates continues to keep buyer interest at a robust level," he said. "Those able to close on a home last month are probably feeling both happy and relieved. Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace, and the prevalence of multiple offers in some markets are pushing prices higher."
The median existing-home price for all housing types in May was $252,800. This surpasses last June's level of $247,600 as the new peak median sales price, which is up 5.8% from May 2016 and marks the 63rd straight month of year-over-year gains.
"Home prices keep chugging along at a pace that is not sustainable in the long run," added Yun. "Current demand levels indicate sales should be stronger, but it's clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions."
Single-family home sales, the biggest share of the market, increased 1% to a seasonally adjusted annual rate of 4.98 million in May, 2.7% above the 4.85 million pace of a year ago. The median existing single-family home price was $254,600 in May, up 6% from May 2016.
Leading Economic Indicators Keep Expanding
Also, a report from Thursday indicated improvements in the overall economy are expected to continue over the next few months.
The Conference Board’s Leading Economic Index (LEI) for the U.S. increased for the ninth straight month in May, registering a 0.3% improvement and a reading of 127, matching analysts’ expectations, and following a 0.2% increase in April and a 0.4% increase in March.
This suggests the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2% growth for the remainder of the year, according to Ataman Ozyildirim, director of business cycles and growth research at the private research group.
“The improvement was widespread among the majority of the leading indicators except for housing permits, which declined again,” he said. “And, the average workweek in manufacturing has recently shown no sign of improvement.”
The Conference Board Coincident Economic Index (CEI), which measures current economic conditions for the U.S. increased 0.1% in May to 115.3 following a 0.3% increase in April and a 0.1% increase in March.
The Lagging Economic Index for the U.S., which measures past conditions, increased 0.1% in May to 124.2 following a 0.3% increase in April and a 0.2% increase in March.
In the six-month period ending May 2017, the LEI increased 2.3%, equaling about a 4.7% annual rate, faster than the growth of 1.1% during the previous six months.
Meanwhile, the CEI for the U.S. has also been rising steadily, but its six-month growth rate remained unchanged.
Taken together, the current behavior of the composite indexes and their components suggests that the expansion in economic activity will continue through the end of 2017, with some upside potential in the near term, according to The Conference Board.
Analysts at Wells Fargo Securities said the increase in the LEI for May is “consistent with our expectations for a continued moderate [economic] expansion.”