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US Manufacturing Picks Up

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The US authorities have just released a mixed bag of data, some important updates have been included in this. The Dallas Fed has announced it’s June Manufacturing Business Index, this is showing a rise to 11.4 from May’s reading of 8.0. Meanwhile the Chicago Purchasing Managers Index is showing a retrenchment to 62.6, this is down on May’s reading of 65.5 and slightly behind the consensus estimate for a 63 reading.

Arguably, the most important reading for the day comes in the form of the Pending Homes Sales data from the National Association of Realtors. Year on year Pending Home Sales are showing a fall of –6.9%, this is in fact a pick up on the April reading which showed a fall of -9.2%. The month on month number produced an unexpected increase of 6.1% in comparison to the previous month’s reading of 0.5%, this tops the consensus estimate for a 0.8% pickup.

Although there is clear evidence of a recovery in the US housing market, this is at best sluggish. The release of pent up demand that built steadily over the harsh winter months is keeping the metrics artificially inflated. Growth in new home loans, as evidenced by the weekly Mortgage Bankers Association figures, is marginal to say the least. Apart from some regional hot spots the growth in house prices is moderate across the economy. This is surprising given the persistently low interest rates environment. Along these lines concern has to be raised as to what will happen to the lackluster demand for home loans once the Federal Reserve begins monetary tightening action sometime next year.

The labor market is partially responsible for the low mortgage approvals rate. Despite the ongoing jobs recovery in the US there are structural difficulties in the labor market that hamper mortgage applications, many full time jobs have now become part time jobs and permanent roles are being replaced with contract and temporary roles. The lack of full time secure income reduces the chances of a successful mortgage application, so individuals simply don’t even apply.

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