Thursday, July 19, 2012

Disappointing Philly Fed Survey, June Existing Homes Sales, and LEI

The Philadelphia Fed business survey, June existing home sales, and the leading economic indicators, were all disappointing.

Philadelphia Fed Business Outlook Survey
  • The overall index came in at -12.9, significantly below the -8.0 consensus, but an improvement from June's -16.6.
  • Every sub-index within this survey was negative except for prices received and prices paid. 
  • New orders, unfilled orders and shipments were all at contractionary levels. 
  • Inventories were also negative, but that might not be such bad news.
  • Number of employees index fell to -8.4 from 1.8, as we suggested it would last month.
  • With average employee workweek remaining at very low levels, we expect only a slight marginal so-called improvement in this survey's employee index for next month. 
  • Businesses surveyed also don't feel much better about how things will look six months from now.  The overall forward index fell slightly to 19.3 from 19.5. 
  • Although more think that average workweek will increase, more also do not plan on increasing their number of employees.
  • It also appears that inventories may not be built back up, as the forward inventories index dipped further to -16.0 from -12.0.

June Existing Home Sales
  • June existing home sales came in at an annual rate of 4.37MM, lower than the 4.65MM consensus and below May's upwardly revised 4.62MM.
  • The, what we believe to be a non-objective analysis provided by the NAR (National Association of Realtors) indicates that lower sales were due to tighter supply as prices also increased.  However, we note that while inventories did decline, due to YTD higher sales, the months supply increased to 6.6 from 6.4.  It is lower than 9.1 in June '11, but is higher than December's 6.0.  There appears to be a little bump in the road for the recovery of the housing market.
  • Median prices increased nearly 8%, while average prices went up nearly 6%, Y/Y.  We believe this is mainly due to foreclosures making up less of the sales.  But foreclosure sales could go up again, in our opinion.

Leading Economic Indicator
  • The LEI for June dipped another 0.3% following a downwardly revised decline of 0.4% in May.  The consensus was for a decline of 0.2%.

Overall, the economic figures were once again disappointing.  However, in our opinion, they were not bad enough for the Fed to announce a QE3. 

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