Economy Watch: New Home Sales Spike; Chicago Fed Reports May Slowdown
- Jun 26, 2012
The Census Bureau reported on Monday that new home sales in May were at an annualized rate of 369,000 units, up 7.6 percent from the revised April rate of 343,000 units. Year-over-year, the May 2012 figure was up 19.8 percent.
Historically, even a rate in the upper 300,000s is low—and at least 600,000 new housing units annually is considered “normal—but recent months have nevertheless seen a distinct improvement in the market for new housing. During the first five months of this year, sales averaged an annualized 353,000 units, while during the 18-month period from mid-2010 to the end of 2011, the average was less than 300,000 units.
The bureau also reported that the inventory of completed homes for sale was at a record low 43,000 units in May. According to the bureau’s definition, “a house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas, and a sales contract has not been signed nor a deposit accepted.” Thus demand is up, supply is down. The new housing market might still be weak, but it seems to be heading in the right direction.
Chicago Fed Says Economy Slowed in May
The Chicago Fed National Activity Index decreased to –0.45 in May from +0.08 in April, the bank reported on Monday. A zero value for the index means that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values mean above-average growth. So the economy went from barely above trend to somewhat below as May turned into a nervous month.
The less volatile three-month moving average (known as the CFNAI-MA3) also suggests that U.S. economic activity dropped below trend during the spring, sinking from –0.13 in April to –0.34 in May. That’s the CFNAI-MA3’s third consecutive reading below zero and its lowest value since June 2011.
Separately, the U.S. Department of Transportation said that U.S. vehicle miles were down in May, another indication of a slowing economy. Travel on all roads and streets dropped by 0.4 percent (1 billion vehicle miles) for April 2012 as compared with April 2011. Travel for the month is estimated to be 247.2 billion vehicle miles. Since the price of gas dropped throughout the month, other economic factors were probably at work in keeping the total down.
Spanish Bailout Request Unnerves Investors
As expected, on Monday the government of Spain formally requested aid from the EU for its banks, as much a 100 billion euros ($125 billion), though the details of the request—in which the devil is known to reside—weren’t immediately clear. And just to make things interesting, on Monday Cyprus formally asked for a bailout as well, though one that would be several orders of magnitude smaller.
Investors told the markets what they thought of the latest wave of bailout-seeking: yields on Spanish and Italian debt went up and the euro went down against the dollar. Euro-zone panjandrums are due to meet in a summit at the end of the week, but that doesn’t seem to be impressing investors either.
Wall Street was back to nervousness again on Monday, probably inspired by Spain’s rattling of the tin cup. The Dow Jones Industrial Average dropped 138.12 points, or 1.09 percent, while the S&P 500 was down 1.6 percent and the Nasdaq declined 1.95 percent.