Economic Data Continues to Soften

Housing
According to the S&P/CaseShiller home price index, home prices have officially double dipped, falling to the lowest level in 8 years. Prices fell .23% m/o/m and 3.6% y/o/y in the 20 city composite. Washington, DC is the only city to see a y/o/y gain for reasons obvious. The y/o/y declines were led by Minneapolis, Phoenix, Chicago, Portland and Seattle in that order. Aside from the hit to household net worth by declining home prices, the US banking system is still very vulnerable as bank balance sheets don’t expect and thus aren’t priced for another downturn in home prices.

Manufacturing
Following a string of softer regional manufacturing numbers in May, Chicago PMI also moderated more than expected. At 56.6, its the lowest since Nov ’09, below estimates of 62 and down 11 points from April. New Orders fell almost 13 pts to the lowest since Sept ’09 at 53.5 and Backlogs were down almost 10 pts to the weakest since Nov at 51.7. Production fell 14 pts to 56 and Employment was down by almost 3 pts to 60.8. Also of note, inventories rose by 8 pts to the most since Sept ’06. The ISM on Wednesday will reconcile all the regional surveys but the message is clear, manufacturing moderated in May with the question being whether its a change in trend or just a midcycle lull. Considering the concerted effort taken on by most Asian nations to slow growth to slow inflation, Europe ex Germany/France growing modestly and a US recovery that is still lackluster, one has to be worried more about the former. Certainly the US treasury market has voted with yields falling sharply over the past month.

Other Surveys
Add the Dallas Fed mfr’g survey to the list of moderating data. Similar to the Richmond survey, Dallas Business Activity in May went negative with a -7.4 reading, well below expectations of +8.5 and from +10.5 in April. It’s the first negative print since Sept as New Orders fell 3 pts, Backlogs were down by 4.6 pts, Orders Growth Rate fell by 10 pts and Employment dropped by 1.8 pts (but the workweek rose 14 pts). Production did rise as orders were fulfilled and the Reserve Bank of Dallas said that even though General Business Activity went negative, 3/4 of respondents “said activity was unchanged from April.” Prices paid and received fell following the drop in commodity prices. The 6 month outlook fell to 10.5 from 16.9, the lowest since Sept.

Confidence
Consumer Confidence in May fell 5.2 pts from April to 60.8 and was well below expectations of 66.6. It’s the lowest since Nov as the future Expectations component fell to the weakest since Oct, down 8 pts from April. The Present Situation fell just 1 pt. As one year inflation expectations rose to 6.6% from 6.3%, this survey didn’t capture the decline in gasoline prices over the past few weeks as the survey was filled out in the beginning to middle of May when prices were near highs and thus maybe renders today’s results somewhat old news if we assume the price of gasoline is a key factor in confidence.

Jobs
With the labor market, the answers were mixed as those that said jobs were Plentiful rose .5 pt and those that said jobs were Not So Plentiful fell by 2 pts but those that said jobs were Hard To Get rose by 1.5 pts.
---Peter Boockvar