May Pending Home Sales fell a sharp 30% m/o/m, twice expectations and of course without the influence of a home buying tax credit. The drop follows three straight months of gains and the decline was broad based. On a y/o/y basis, the decline was 15.6%. As with any temporary tax credit that is introduced to stimulate activity, demand gets pulled forward and is then followed by a sharp decline. We’re now seeing textbook economic behavior as a result of these gimmicks in the housing data. Yes its crackpot economics on the part of our policy makers but something we unfortunately have to deal with. The question then becomes what happens after the expected fall off as the industry deals with normal supply and demand dynamics.
ISM manufacturing was 56.2, below the forecast of 59, down from 59.7 in May and is at the lowest level of 2010. The overall level however is still well above the 10 yr average of 51 but the direction is of course the focus. New Orders fell 7 pts to 58.5 and Backlogs fell 2.5 pts to 57. Export Orders fell 6 pts to 56 to the lowest since Dec ’09. The Employment component remained elevated at 57.8 but is down 2 pts from May. Inventories at the manufacturing level was little changed but below 50 for a 3rd straight month while inventories at the customer level rose 6 pts but at a still depressed 38. Prices Paid fell a sharp 20 pts to the lowest since Nov. Of the 18 industries surveyed, 13 reported growth, down from 16 in May. The ISM said “comments from the respondents remain generally positive, but expectations have been that the 2nd half of ’10 will not be as strong in terms of the rate of growth, and June appears to validate that forecast.”