Economic data

Following much weaker than expected NY and Philly Fed manufacturing surveys, the Richmond region reported an outright contraction as their index fell to -6 from +10, the 1st negative reading since Sept. This area covers mfr’s in DC, Maryland, Virginia and West Virginia and New Orders went to -15 from +10 and Backlogs fell to -19 from -1. Positively, even with the broad weakness, the Employment component remained unchanged at 14 but the average workweek fell to zero from 7 and wages were down to 6 from 22. While current conditions softened, the outlook remains still upbeat. Bottom line, the Richmond survey is never market moving as its not widely followed but its another piece in the anecdotal puzzle of the moderation seen in manufacturing in May with the obvious hope that its just a midcycle misstep before the next acceleration. The ISM national number is out next week.

Continuing the trend of bouncing along the bottom, New Home Sales totaled 323k annualized, 23k more than expected and is up from 301k last week. While it’s off the 50+ yr low of 274k in Aug, its well down from the bubble peak of 1.389mm. Because the absolute number of homes for sale fell by 5k to 175k, the lowest since at least 1963, months supply fell to 6.5 from 7.2, a one year low. Due to the competition from a still large amount of existing homes, where many are selling below replacement cost and in foreclosure, home builders still have a bumpy ride ahead but that’s not new news to any of us. The best response on the part of builders is to shoot themselves in the foot for as long as they can financially stand so the market can more quickly absorb the excess inventory of existing homes which make up most of the overall market.

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