Richmond Fed falls back into contraction

In July, Conference Board’s consumer confidence unexpectedly improved. The headline index rose from a downwardly revised 57.6 to 59.5, while the consensus was looking for a further worsening in sentiment. The details show that consumers became more pessimistic about the present situation (35.7 from 36.3), but this was more than outweighed by an improvement in sentiment about the expectations (75.4 from 71.6). Also sentiment about the labour market weakened further, falling from - 38.1 to -39. Although the headline figure came out above expectations and showed even a rebound, the details show a more mixed picture, confirming that the weak labour market conditions are still hurting consumer sentiment.

The Richmond Fed manufacturing index fell back into contraction in July, after a slight rebound the month before. The Richmond Fed index fell from 3 to -1, while a further improvement to 5 was expected. The details confirm the worsening in sentiment as new orders (-5 from 0), order backlog (-18 from -11), capacity utilization (-6 from -2) and number of employees (4 from 14) dropped compared to the previous month. Shipments stayed unchanged at -1, while average workweek (0 from -1) and wages (10 from 9) improved slightly. Upward price pressures eased further with both prices paid (3.41 from 4.53) and prices received (1.18 from 1.94) extending their downward path. The index suggests that the manufacturing sector is broadly stabilizing, suggesting that the softness in activity might last somewhat longer than was expected.

In June, US new home sales dropped for a second consecutive month, while the consensus was looking for a slight increase. On a monthly basis, new home sales were down by 1.0% M/M to a total level of 312 000, while an increase by 0.3% M/M was forecasted. The previous figures were slightly downwardly revised. The details show a mixed picture as new home sales dropped in the Northeast (-15.8% M/M) and West (-12.7% M/M), while the rose in the Midwest (9.5% M/M) and South (3.4% M/M). The number of new homes for sale dropped from 167 000 to 164 000 and months’ supply fell slightly, from 6.4 to 6.3. Price data showed a more encouraging development as both median and average prices rose in June. Nevertheless, new home sales remain close to record low levels as the market is facing intense pressure from foreclosed properties, which usually sell at lower prices. No quick solution is expected therefore.