It's indeed a very good commencement to the week! The major US equity markets are enjoying a great rally today with the S&P 500 finally crossing above the 2,000-level for the first time in history. Most notably today, the index was lifted due to a round of corporate deals and optimism that the European Central Bank would start doing more to stimulate the European economy. It is quite a heavy day of economic releases, although none in particular (save homebuilders) are drastically impacted on a microeconomic level.
Firstly, the Chicago Fed National Activity Index came in at a reading of 0.39 in July, compared to a revised 0.21 in June, which points to some definitive pickup in economic activity. Also worth noting is the fact that the 3-month average, at 0.25 versus June's revised 0.16, is over breakeven zero for a fifth month in a row. Three of the four major index components were positive for July, most notably the production indicator reflects strength in manufacturing. Employment also improved thanks to the dip in jobless claims helping to offset the slight increase in the unemployment rate.
Next, Markit's flash reading of the Services PMI showed that growth in the US service sector remains strong, but has moderated in August to 58.5 versus the whopping 61.0 in both the readings for final and mid-month flash reading in July. Service businesses reported strength in both household and business clients, as new business remains strong. The employment component of the index is higher, but only slightly, though the general market outlook is very strong.
The biggest market downer for the day was the July reading for new home sales. Upward revisions to the home sales from June (to 422,000 from an initial reading of 406,000) should have been enough to offset a lower-than-expected 412,000 annual sales rate for new home sales in July, but the homebuilding group did not react positively. Overall, the two prior months revised higher by a total of 28,000 units. July's gain was centered entirely in the Southern US, which rose 8.1%, and it is by far the largest region for new home sales, outdistancing all other regions combined. There certainly is no lack in market of new homes as supply increased to 205,000 units from 197,000 in June, which pulled the monthly supply sales rate up to 6.0 months from 5.6 in June. Part of the reason new home sales were struggling in recent years was pricing concerns, but it appears that these concerns are slightly easing. The median price of a new home fell 3.7% in July to $269,800. Year-over-year, the median price is up only 2.9%, which is well below the year-over-year sales gain of 12.3%. Overall, despite the soft headline number, concentrated gains in the South and better pricing are pointing to a slow, but sure recovery in the housing sector.
The home builder's index did not take to kindly to the lower than expected delivery of sales during the month of June. Notice the steep decline in the index moments after the Census Bureau released housing data.