KEY DATA: CoreLogic (monthly): +2.1%; Year-over-Year: +10.5%/ISM (Manufacturing): +0.5 points; Orders: +1.8 points; Employment: -1.9 points
IN A NUTSHELL: "Housing price increases remain pretty solid and with the economy improving, we should see sales continue to rise."
WHAT IT MEANS: There has been a lot of concern about home sales as they faltered in the winter and the spring rebound has hardly been spectacular. One explanation is that prices have been rising and that is making it difficult for some buyers to secure mortgages. Well, prices continue to rise. CoreLogic’s April index rose robustly and even when you exclude distress homes, the gain was still quite good. Not surprisingly, the year-over-year increase is slowing. Given it have been in the double-digits and it remains there, the moderation is nothing to worry about. CoreLogic expects prices to increase by about 6.3% over the next year and that would be just fine if that happened. In April, 95 of the top 100 metro areas posted gains from the year before.
Yesterday, there was a major data debacle and it wasn’t even the government’s fault! The Institute for Supply Management twice reported the wrong manufacturing index. I think they have it straight now, at least I hope so given the non-manufacturing report comes out tomorrow and most economists really like these data. The final numbers show that manufacturing activity improved as orders rose and production jumped. Indeed, April factory orders were released today and they were up solidly for the third consecutive month. The one concern, if you can call it that, was a slowdown in job gains. Payrolls still were up, but the pace moderated.
MARKETS AND FED POLICY IMPLICATIONS: The data are finally coalescing around one message: The economy is accelerating. The corrected ISM report showed that manufacturing is picking up steam as orders are soaring. The rise in home prices should actually help the housing market. We need to lift the many homeowners still either under water or have minimal equity back to where they can actually sell their houses. That is the "churn" that really creates a strong housing market. Continued price increases may price some out but it will allow many more to get back into the game. But most impressive was the May vehicle sales pace. We don’t have all the numbers yet, but it looks like sales will be between 16.5 and 16.9 million units annualized. That would put it at the strongest rate since early 2007 and point to a very strong second quarter consumption number. All we need is a decent May jobs report on Friday. It is not likely to be anywhere near the April numbers. However, if payrolls rise by anything above 200,000, and if as I expect the April gain is revised upward, it will be clear that the economy is becoming a jobs machine once again. Investors should love today’s reports but caution is always the code word with an employment report looming. One place where worry could be setting in is the bond pits: It will be hard to rationalize current rate levels if the U.S. economy is indeed shifting gears, even if Europe has to ease.