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Economic Watch: Manufacturing Continues Weakening, New Home Sales Jump

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The U.S. manufacturing sector crept closer to contracting in May, while new homes sales in April hit their highest level in more than eight years.

According to the preliminary Flash U.S. Manufacturing Purchasing Managers’ Index from the financial information services provider Markit, its latest reading of 50.5 is only slightly above the neutral mark of 50 and is down from a final reading of 50.8 in April.

The gauge in overall manufacturing business conditions is the weakest since the current upturn started in October 2009. A renewed fall in production was one key factor weighing on the headline index in May, alongside softer new order growth.

A number of monitored firms mentioned that uncertainty around the general economic outlook had caused clients to delay spending decisions, which in turn prompted firms to trim their production schedules, according to the report.

“The weak manufacturing PMI data cast doubt on the ability of the U.S. economy to rebound from its disappointing start to the year in the second quarter,” said Chris Williamson, chief economist at Markit. “The survey is signaling that manufacturing will act as a drag on economic growth in the second quarter, leaving the economy once again dependent on the service sector, and consumers in particular, to sustain growth.”

The report said softer client demand was highlighted by a further slowdown in new business growth in May. Furthermore, the latest expansion in new order books was the weakest seen in 2016 so far. Data indicated that reduced foreign client demand had underpinned slower growth in overall new orders. New export sales fell for the second month in a row, though the rate of reduction softened since April.

“Backlogs of work are also dropping at the fastest rate since the recession, meaning firms will be poised to cut capacity unless inflows of new work start to pick up again,” Williamson said. “The survey’s employment gauge is in fact already running at a level consistent with a further reduction in the official measure of factory payroll numbers.”

A final reading for May and the more closely watched monthly Purchasing Managers Index from the Institute for Supply Management are set for release on June 1. The latter showed an April decline and weakness when it was released earlier this month.

New Home Sales Roar In April

Meantime, sales of new homes in the U.S. skyrocketed in April, hitting an adjusted annual rate of 619.000, according to a new Commerce Department report.

This is 16.6% better than March’s upwardly revised rate, the biggest monthly jump in 24 years, according to Marketwatch, and a whopping 23.8% improvement from April 2015.

Despite the overall improvement, sales in different regions of the country remain volatile, jumping 53% in the Northeast, 19% in the West, and 16% in the South, but dropping 5% in the Midwest.

This follows figures released last week by the National Association of Realtors showing total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.7% to a seasonally adjusted annual rate of 5.45 million in April from an upwardly revised 5.36 million in March. After last month’s gain, sales are now up 6% from April 2015.

Lawrence Yun, NAR chief economist, says April’s existing homes sales increase signals slowly building momentum for the overall housing market this spring.

“Primarily driven by a convincing jump in the Midwest, where home prices are most affordable, sales activity overall was at a healthy pace last month as very low mortgage rates and modest seasonal inventory gains encouraged more households to search for and close on a home,” he said.

 

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