Dallas Federal Reserve Manufacturing Survey Drops to Three-Year Low… The survey’s general activity index was expected to rebound from -5.3 to -1.0. Instead, it fell further to be -12.1.
What it means – The survey is a diffusion index, combining scores on questions about general business activities and outlook among manufacturing companies in the several states served by the Dallas Fed. We don’t normally comment on these reports because they’re regional and usually not informative but dropping to a three-year low with equity markets at all-time highs caught our attention.
Not everything in the survey showed weakness. New orders rebounded a bit, and factory activity increased. But new orders fell, and capital expenditures sank to a two-year low. With earnings season on deck in July, look for signs of weakness that could weigh on the markets.
April S&P CoreLogic Case-Shiller 20-City Home Price Index (HPI) Growth Rate Eases to 2.5%… The index growth rate dipped by 0.1%, continuing the trend that’s been in place for about a year.
What it means – The HPI is reported on a two-month lag, so we’re looking at information from April as we head toward the first week in July. Housing tends to move in long waves, so this usually isn’t a problem, but we’re getting conflicting numbers. Existing home sale prices rose 4.8% in May, and that’s about 89% of the market. While the HPI is a long way from the 6% growth we saw in late 2018, we might get a bounce back toward 3% or more when we get the May figures. One month doesn’t change a trend, but it will make those trying to sell homes feel better.
New Home Sales Fall 7.8%… New home sales tumbled in May and are down 3.7% over the same time last year.
What it means – The bad news in the report didn’t stop at the sales numbers. The median home price also tumbled, down 8% and is now 2.7% lower than the same time last year. This could show that homebuilders are focusing on more modest homes, trying to serve the low end of the market. Either way, new home sales are just 11% of the market, so they don’t have a huge effect on the industry. With sales dipping, supply rose to 6.4 months, which is back to the normal range.
Durable Goods Orders Down 1.3% in May… Excluding aircraft and cars, orders increased 0.3%
What it means – Boeing’s issues with its 737-Max are weighing on the Dow Jones. Durable goods orders and falling car purchases aren’t helping either. That’s why there’s such a big difference between the headline number and orders excluding transportation.
Digging a little deeper, orders for core capital goods (non-defense, excluding aircraft), rose 0.4%, which is a welcome relief from the 1% drop last month. But even though core capital goods orders rose a bit, shipments of core capital goods dropped off 0.5%, which matches up with weakness in the Dallas Fed survey. The soft numbers led the Atlanta Fed’s GDPNow model to shave 0.1% off the estimate of second-quarter GDP growth, knocking it down to 1.9%.
First-Quarter GDP Reiterated at 3.1, But Personal Consumption Lagged… The third estimate of first-quarter GDP came in as expected, but some of the components changed, with personal consumption down and net exports and inventories making up the difference.
What it means – The rearranging inside of the GDP calculation should worry investors. If personal consumption is slowing down, that would put more of the burden on businesses to increase activity. In other reports, businesses are doing the opposite, pulling in their economic horns as well. This just provides more reasons why second-quarter GDP might disappoint people who were hoping that the higher growth rates seen after the tax cuts would become self-reinforcing. They haven’t. We’re back to where we’ve been for the entire recovery, with GDP growth stuck in a low range around 2%.
Tesla Likely to Miss Production Estimates… Tesla CEO and Founder Elon Musk assured the world that the company would produce 400,000 cars this year and could reach even higher numbers. But those words are fading as production appears to be lagging. According to Electrek, Tesla had produced 49,000 vehicles this quarter through June 25, and was doing everything in its power to turn out just over 1,000 vehicles per day. But with five days left in the month, it will be a stretch for the company to hit 60,000, and overseas deliveries aren’t expected to add 30,000 to the total.
The problem isn’t demand, as the company seems to have a steady stream of orders at this level, they just can’t get them out the door. Tesla famously set up a tent outside its California facility, and now produces cars in the temporary structure. All of this should send a warning sign to buyers because Tesla now ranks 27 out of 29 car companies in initial quality.
If the company is rushing to get more out the door, and already assembles cars in a tent, how likely is it that a new Tesla produced near the end of the quarter is defect-free? Some of us remember the old caution to never buy a Detroit car made on a Monday.
Data supplied by Dent Research/Delray Beach Publishing
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