Consistent improvements in the labor market are yet failing to be reflected in improvements in the housing sector.
By Peter Martin
Monday, July 28, 2014
Last week we saw a steep decline in new home sales and data released today by the National Association of Realtors suggests sluggishness in home sales remains an obdurate thorn in the side of the economy. The NAR’s pending home sales index was expected to come in close to its May level of 103.8, but instead dipped 1.1% to a reading of 102.7. Admittedly, this was a retreat from a strong level, but with other areas of the economy on an upward curve, it came as a disappointment to the market, contributing to a weak morning session on Wall Street.
The Dow Jones Industrial Average slid more than 80 points at one point earlier in the session, but reclaimed a substantial portion of those losses by early afternoon in New York to stand at 16,929, down by 31 points or 0.18%. The S&P 500 index, meanwhile, slid 0.21% or 4.2 points to 1974.1.
Other economic news this morning provided slightly more encouragement. The flash reading of Markit’s Purchasing Managers’ Index (PMI) for the private services sector came in at 61.0 for July, little changed from June’s 61.2 and well above the 50.0 mark that divides contraction from expansion, suggesting growth is still at very healthy levels, despite some evidence of slowing.
Yet more evidence of manufacturing strength came from the Dallas Fed’s latest regional survey. Its business activity index advanced to 12.7 in July from 11.4 in June and its production index soared to 19.1 from 15.5 in the month prior. A significant leap in the new orders component suggests momentum has a good chance of being maintained, while capacity utilization was another component with a notably large gain.
The dollar hasn’t moved much against its leading peers today, slipping less than 0.1% against the British pound and the euro and remaining unchanged against the Japanese yen, but there are a number of potential catalysts this week, including the outcome of July’s FOMC meeting, a first estimate on second-quarter GDP (both on Wednesday) and June’s non-farm payrolls report (on Friday). GDP is expected to bounce back strongly after a disastrous first quarter in which the US economy shrank by the most since early 2009; according to a Bloomberg poll of analysts, an annualized growth rate of 3.0% is expected for GDP in Q2, which would be a major snap back after the 2.9% contraction experience in Q1.
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