With stocks sliding along with precious metals, take a look at this…
Is The Economy Shifting?
August 23 (King World News) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The US Markit manufacturing and services composite index for August fell to 55 from 55.7 as both components fell m/o/m.
That is a 4 month low with the manufacturing index at the lowest level since November 2017 and lower for a 4th straight month. The services side fell for a 3rd month…
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With manufacturing, Markit saw:
“slower rates of output and new business growth” while “job creation and capacity pressures also moderated in August.”
On the latter though:
“manufacturers continued to indicate a sharp lengthening of suppliers’ delivery times, which survey respondents linked to widespread truck driver shortages.”
Price pressures did ease but remained high.
On the services side:
“new business volumes increased at the slowest pace seen so far in 2018…Weaker growth in client spending contributed to a sustained fall in backlogs of work, with the latest decline the greatest since March 2017. Moreover, service providers signaled the least marked rise in payroll numbers for 8 months.”
Price pressures here eased too but:
“prices charged by service sector firms continued to rise at one of the fastest rates seen over the past 4 years, reflecting efforts to alleviate pressures on operating margins.”
Markit is attributing some of the weakness to:
“jobs growth in manufacturing and services is being restricted by a lack of available workers, while factories are also constrained by a lack of raw materials, sometimes blamed on ‘panic buying’ of safety stocks as well as a lack of transportation to ship goods around. However, the survey also found increased cases of companies reporting the need to cut costs, in part reflecting the recent steep rise in raw material prices, often linked to tariffs and shortage related price hikes.”
Markit quantified the slowdown saying it is more consistent with 2.5% growth vs the 3% seen in July. Unfortunately there was not any commentary on export orders unlike in the PMI’s overseas.
Bottom line, the market doesn’t care about this number and will be more focused on the ISM reads in coming weeks. We do have to acknowledge though that if overseas growth continues to slow, our export businesses won’t be immune.
Here’s What’s Happening With New Homes Sales
New home sales in July totaled 627k, 18k less than expected, partially offset by a 7k upward revision to June to 638k. The 627k print is the slowest since October 2017 and brings the 3 month average to 640k vs the year to date average of 646k.
With the number of homes for sale rising to the most since March 2009 at 309k which happens to be exactly the 15 year average, months’ supply rose to 5.9, the highest since August 2017. Regionally, there was a sharp drop in sales in the Northeast as they got cut in half m/o/m. SALT deduction related? Lower mortgage deduction threshold induced? Pricing? Sales out West were the standout to the upside.
Pricing wise, the median home price rose to the most in 4 months and the average price rose to just below a record high. On the latter, it was due to mix as home sales fell for those priced below $300k but rose for those priced above $750k (just ask Toll Brothers whose average home price is above $800k).
Bottom line, this is just another data point, after existing home sales yesterday, indicating a slowdown in the pace of housing transactions for reasons stated here many times, price and funding costs and maybe now the stronger US dollar inhibiting foreign purchases. There is no question there is a lot of enthusiasm about the US economy driven by solid consumer spending but the interest rate and pricing sensitive housing and auto sectors have topped out and a slowdown in overseas growth will impact US exports. Gives and takes.
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