Better Housing ... Worse Manufacturing

Existing home sales for April were released this morning.  The figure came in at 4.62MM, slightly below estimates of 4.65MM, an increase of 3.4% from the prior month, and 10.0% Y/Y.  We note that the March figure was revised down by 100K.  The month's supply increased to 6.6, that's up 6.5% from March.  The good news is that it is down 27.5% from last year.

The region that experienced biggest increase in seasonally adjusted sales versus last month was the Northeast, 5.1%.  The weakest region based on a monthly comparison was the Midwest.  The Northeast also saw the biggest Y/Y increase at 19.2%.

On the pricing front, there was a 10.1% Y/Y increase in prices, with the West leading the way at 15.9%.  There was not a decline in prices in any of the regions.

Now, let's move to the not-so-good news.  The Federal Reserve Bank of Richmond released its May manufacturing survey results, and they came in significantly below expectations.  Current conditions were 4.0 versus the 11.0 estimate.  In addition, that figure was a significant decline from April's 14.0.  This was more in line with the Philly Fed rather than the Empire State survey results.

The bright side was that the number of employees and the average workweek increased, according to the businesses surveyed.  However, the wages indicator declined.  Other components of the survey that we believe can be viewed as indicators for future hiring were down.  They include backlog of orders coming in at -18.0, and much lower m/m volume of new orders and capacity utilization.

Results of survey about the businesses' expectations support what we just said.  Expectations regarding order backlogs, capacity utilization, number of employees and capex were all lower than the prior month.  Expectations regarding volume of new orders came in only slightly above April's figure.  Wages were also a bit higher, but that is not surprising, given the increase in number of employees cited in the current conditions survey.  Prices paid declined at a lower rate than prices received, which is usually not very good news.  Prices paid declined 14.4% versus a decline of 17.6% in prices received.

Regarding the overall market, after the S&P 500 came close to the 1290 level that we have been suggesting for a while, more specifically, 1291.98 on Friday, we are seeing a dead-cat bounce.  Right now, it is at 1327.19, up 2.7% from the Friday lows.  As things had gotten worse, increasing hopes and chances of further monetary easing, along with today's better than expected housing numbers, are driving the markets higher.  We think the market will likely settle a bit later this week as various economic indicators (new home sales, FHFA housing price index, initial jobless claims, durable orders, and consumer confidence) are scheduled to be released.  We think they'll provide mixed signals regarding the economy.  Let's not forget about the EZ crisis, of which another 'kicking the can down the road' step was taken (as it was revealed that Greece and other PIIGS members received some 'emergency' and 'secret' loans), which is also driving US equity markets higher.  We remain cautious as Greece's election is not far away, and as we get closer, the market will likely again demonstrate a risk-off.

And regarding FB, as we know most readers probably have their Facebook page open right now, it is trading down about 3%.  We note that it has pared its losses a bit as it was down more than 8% earlier this morning.