In June, the Philadelphia Fed manufacturing index extended its steep downtrend, becoming the third regional business confidence indicator that fell into contraction, following the NY and Richmond Fed manufacturing indices. The headline index fell from 3.9 to -7.7, while the consensus was looking for a slight increase to 7.0. Looking at the details, new orders (-7.6 from 5.4) fell into negative territory and unfilled orders (16.3 from -7.8), delivery time (-20.5 from -2.3) and inventories (-8.5 from - 2.3) slid further into contraction. Shipments (4.0 from 6.5), number of employees (4.1 from 22.1) and average workweek (1.9 from 3.9) weakened compared to last month, but managed to stay in positive territory. Inflationary pressures eased as both prices paid (26.8 from 48.3) and prices received (4.4 from 16.8) fell sharply. Finally, also the forward looking index weakened sharply, falling from 16.6 to 2.5. The Philly Fed index fell from a high of 43.4 in March to -7.70, losing 50 points and hitting the lowest level since July 2009. While we hoping to see some rebound after the awful May figures, this outcome suggests that the slowdown is more severe that previously anticipated.
In the week ended June the 11th, US initial jobless claims fell by 16 000 from an upwardly revised 430 000 to 414 000, while the consensus was looking for a more moderate decline to 420 000. The less volatile four-week moving average stayed unchanged at 424 750. The Labour Department added that there were no special factors. Continuing claims, which are reported with an extra week lag, came out slightly above the consensus. Continuing claims dropped by 21 000 to a total level of 3 675 000, compared to a consensus reading of 3 670 000. Initial jobless claims are above the 400 000 level for the tenth consecutive month, but they are hovering back to the important 400 000 level, which is an encouraging sign and might indicate that the effect from the supply disruptions is easing.
In May, US housing starts rebounded, in line with expectations. On a monthly basis, housing starts rose by 3.5% M/M to a total level of 560 000 and the previous figure was upwardly adjusted from 523 000 to 541 000. The details indicate that the rebound was broad-based as both single (3.7% M/M) and multi-family (2.9% M/M) starts rose in May. Building permits unexpectedly rebounded in May and also here, the April outcome was upwardly revised. In May, building permits jumped by 8.7% M/M to a total level of 612 000, while the consensus was looking for a slight decline. The rebound in permits was led by multi-family ones (23.2% M/M), while single family permits rose by a more moderate 2.5% M/M. Housing under construction weakened marginally (by 0.2% M/M), while housing completed rose slightly (0.4% M/M). The May housing data were probably boosted by better weather conditions and as levels are still depressed this creates high volatility in the month-onmonth percentages. We believe however that the market for new homes will remain depressed in the coming months, facing strong competition from the large inventory of unsold homes and as credit conditions remain tight.