The Greek crisis continued to roil the markets last week and is expected to have a lasting impact on the markets at least in the near to medium term. Even if European leaders opt to ease bailout norms for Greece, it may serve only to reduce the nation's travails, as it continues to face unsustainable and significant current account deficit. The austerity measures the nation has embraced had done little to alleviate its debt burden, while also having a negative influence on growth. The Greek saga is set to have more legs to play out before things settle down.
Last week saw the release of mixed economic data domestically, with retail sales rising a mere 0.1 percent and the manufacturing sector relaying mixed messages, while industrial production growth and housing starts were solid. The data reinforces the view that the U.S. economy is slowing and steadily getting back on track. Nevertheless, caution is likely to be the watchword, as global macroeconomic uncertainties intensify, given the back drop of worsening fiscal scenario in Europe and the slowing growth in China.
Manufacturing readings released last week were confounding. The results of the New York Federal Reserve's manufacturing survey showed that activity in the manufacturing sector in the region expanded at a faster pace in May. The business conditions index rose 10.5 points to a 2-month high of 17.09. The new orders index rose about 2 points to 8.3 and the shipments index climbed 17.7 points to 24.1. The employment indexes also improved, with the number of employees index rising about 1 point to 20.5, while the average workweek index improved about 6 points to 12.1.
Meanwhile, the results of the Philadelphia Federal Reserve's manufacturing survey suggested a contraction by manufacturing sector in the region. The manufacturing index based on the survey came in at -5.8 in May from 8.5 in April. The new orders and unfilled orders indexes slipped into negative territory to -1.2 and -9.4, respectively, while the shipments index rose 1.7 points to 3.5. The employment indexes also worsened.
Also on a positive note, U.S. industrial output rose a better than expected 1.1 percent month-over-month in April, thanks to a 4.6 percent jump in utility output. Manufacturing output also rebounded, rising 0.6 percent on solid support lent by motor vehicle and parts and business equipment. Capacity utilization rose by a better than expected 0.8 points to 79.2 percent.
Housing readings of the week cheered. The results of the National Association of Home Builders' survey showed that builder confidence improved in May. The housing market index based on the survey rose 5 points to a 5-year high of 29. The present conditions index rose 5 points compared to a 3 point-improvement by the expectations index. The index measuring prospective buyer traffic climbed 5 points to 23.
Additionally, the Commerce Department reported that housing starts rose 2.6 percent month-over-month in April to a 2-month high of 717,000. Starts were up in the Midwest and the South, while they declined in the Northeast and West. Building permits, an indicator of future housing activity, fell 7 percent to 715,000.
Consumers are turning in muted showing. U.S. retail sales rose 0.1 percent month-over-month in April following a 0.7 percent increase in March. The slowdown reflected the impact of an early Easter. Auto sales rose 0.3 percent, furniture sales climbed 0.7 percent and electronics and appliance sales were up 0.2 percent. On the other hand, building materials, garden equipment & supply dealers sales fell 1.8 percent. That said, core retail sales that exclude gas, autos and building materials, rose 0.4 percent, marking the fourth straight month of gains.
Weighed down by energy prices, consumer prices remained unchanged in April. Food prices were up a modest 0.2 percent. Excluding food and energy prices, consumer prices were up 0.2 percent.
The Commerce Department reported that business inventories rose a smaller than expected 0.3 percent month-over-month, while business sales were up 0.6 percent. The business inventories to sales ratio was at 1.27 compared to 1.26 in the year-ago period.
The Conference Board's report showed that the U.S. leading economic indicators index fell 0.1 percent month-over-month in April, marking the first drop since September. Meanwhile, the lagging and coincident indicators indexes rose 0.5 percent and 0.2 percent, respectively.
Housing readings are due to dominate proceedings on Main Street in the unfolding week, with the National Association of Realtors' existing home sales report for April and the Commerce Department's new home sales report also for April being the key among them. The Commerce Department's durable goods orders report for April, the final reading of the Reuters and the University of Michigan's consumer sentiment index for May and the weekly jobless claims report could also sway the markets.
The economic calendar of the week also features the Federal House Finance Agency's housing market index for March and Treasury auctions of 2-year, 5-year and 7-year notes.
Going by the increase in the pending home sales index for March and positive commentary on the housing market outlook by the homebuilders, one can expect a bounce in existing home sales for April. That said, high inventory levels of distressed properties remain an overhang on the housing market.
The durable goods orders should see a rebound in April, thanks to a strong performance by business equipment orders, which took a hit in the first quarter due to scaled-back depreciation allowance. The strength in this space is expected to offset the weakness seen in commercial airplane orders. Boeing (BA) reported in its website merely 4 commercial airplane orders for April.
There are no important economic reports due to be released on Monday.
The National Association of Realtors is scheduled to release its report on existing home sales for April at 10 am ET. Economists estimate existing home sales of 4.66 million for the month.
Existing home sales unexpectedly fell 2.6 percent month-over-month to an annualized rate of 4.48 million units in March. Sales of single-family homes declined 2.5 percent compared to a 3.8 percent drop in condominium and other multi-family home sales. Inventories fell 1.3 percent in absolute terms to 2.37 million units, while inventories measured in terms of months of supply held steady at 6.3 months. The median price of an existing home rose 5.3 percent to $163,800.
The Commerce Department is due to release its new home sales report for April at 10 am ET. The consensus estimate calls for new homes sales of 335,000.
New home sales for March came in at a seasonally adjusted annual rate of 328,000 compared to an upwardly revised reading of 353,000 for February. New home inventories measured in terms of months of supply rose to 5.3 months in March from 5 months in the previous month. The median price of a new home fell 1 percent from the previous month but was up 6.3 percent year-over-year to $234,500.
The Federal House Finance Agency, or FHFA, is set to release its house price index for March at 10 am ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.3 percent month-over-month increase in the house price index, the same pace as in the previous month.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 18th at 10:30 am ET.
Crude oil stockpiles rose by 2.1 million barrels to 381.6 million barrels in the week ended May 11th. Inventories were above the upper limit of the average range.
Meanwhile, gasoline inventories fell by 2.8 million barrels and dropped to the lower limit of the average range. Distillate inventories dipped 1 million barrels, remaining in the lower limit of the average range. Refinery capacity utilization averaged 86.3 percent over the four weeks ended May 11th compared to 85.4 percent over the previous four weeks.
The Commerce Department is set to release its durable goods orders report, which gives the value of orders placed for goods designed to last for more than 3 years, at 8:30 am ET. Economists expect a 0.5 percent increase in durable goods orders for April. Excluding transportation, orders may have risen 0.7 percent.
In March, durable goods orders fell 4 percent month-over-month, with the headline number getting a hit from the 12.6 percent slump in transportation equipment orders. Nevertheless, shipments of durable goods rose 0.9 percent, unfilled orders were up 0.1 percent and inventories were up 0.5 percent..
The Labor Department is due to release its customary jobless claims report for the week ended May 19th at 8:30 am ET. Economists expect claims to edge up to 371,000 in the recent reporting week.
Jobless claims came in at 370,000 in the week ended May 12th, unchanged from the previous week's upwardly revised reading. At the same time, the 4-week average declined 5,000 to 375,000, while continuing claims for the week ended May 5th rose by 18,000.
The Reuter and the University of Michigan's final report on the consumer sentiment index for May is scheduled to be released at 9:55 am ET. The consumer sentiment index is expected to be left unrevised at to 77.8.
by RTT Staff Writer
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