Regular readers will know that I track the US’s regional manufacturing indexes. I do this because manufacturing is a key component of the US recovery in a new normal of investment led growth and as such is a good way to gauge the sustainability of the current cycle.
There is good news and bad for this month’s surveys. The good news is that the headline indexes generally held up. The following is a five year chart is of the five surveys against the ISM (in blue):
As you can see, two rose and three fell. That’s a pretty good performance in the circumstances of a weakening global economy. However, the headline indexes tend be more coincident than leading and that’s where the news is not so good. The new orders sub components, which are leading, are weakening (I’ve charted them against the ISM in blue):
I couldn’t chart Kansas City but it did buck the trend, rising from -8 to 10. Nonetheless, there’s a pretty clear rolling over going on. It’s not yet dramatic but enough to suggest we may see a weakening in this month’s ISM. I say suggest because, as I’ve said before, these regional indexes are only a rough guide to the national PMI.
Meanwhile, the great white hope of the global economy, US housing, also had a rough night. For some reason it came as a shock to everyone that pending home sales fell sharply in April, down 5.5% month on month, the most in a year:
Year on year the index is still up 14.7%:
Why am I unsurprised by the April result? Well, I wrote the following in March:
- the Federal Housing Administration (FHA), which backs over 40% of new mortgages in the US via lender’s mortgage insurance, is planning to increase its insurance fees on April 1st and is looking at limiting seller contributions to buyer deposits from today’s 6% to 3%
This looks like demand pulled forward to me.
Just why market prognosticators continue to ignore the effects of official tinkering with housing markets I don’t know. The same dynamic was completely missed here during the bogus recovery in mortgage issuance through late last year. The good news is that the other influences that have helped US housing find a base are still in play. Operation Twist and European woes continue to crush the 30 year bond and mortgage rates. Though the former will end soon (no doubt replaced shortly afterwards by QE3). And many other public programs are still limiting foreclosures.
In sum, with US manufacturing growth likley under increasing pressure and housing in no way headed for gains (though perhaps basing), the US recovery – which is real – is about to look anaemic once more.
Global growth is on its own.
