NEW YORK (Reuters) - The pace of factory activity in the U.S. mid-Atlantic region contracted in July for the third month in a row, but less sharply than in June, a survey showed on Thursday.
U.S. June leading indicators fell more than expected, pointing to lower economic growth.
Contracts to purchase previously owned U.S. homes fell in June but the median sales price was higher than a year ago.
MICHAEL TREBING, ECONOMIC ANALYST, FEDERAL RESERVE BANK OF PHILADELPHIA:
“The Federal Reserve Bank of Philadelphia’s business activity index suggested business conditions were weaker again this month. The broadest activity measure remained negative. New orders and shipments also remained negative, though they rebounded from lows. Average work hours were lower.
“Future expectations diminished, but most firms believe recent weakness will be temporary. The forward-looking numbers held up okay. Thirty-seven percent of the firms still expect increased activity over the next six months and 18 percent expect less activity.
“We asked people to characterize demand for their products and factors affecting they considered most relevant to any slowdown. They cited increased uncertainty about the economy, future tax rates and government regulations. Down the list was slowing export demand. Most comments focused on the uncertainty related to the economy in general and the upcoming elections.”
MICHAEL STRAUSS, COO AND CHIEF ECONOMIST AT CONNECTICUT-BASED COMMONFUND:
“Existing home sales may have slipped because there may have been less distressed sales in the number. The median price went up quite substantially, so the way I’d look at economic value of housing is to focus on starts, construction activity and not necessarily resales, because at times there can be distortions related to distressed sales and how they hit the system.
“(The economy) is a little bit weaker than expected, little bit offset by earnings. It you look at the run we’ve had in last 48 hours, it wouldn’t surprise me if we saw market participants now taking a few chips off the table. We’re going to get a softer Q2 unless we get some catch-up in government spending which was absurdly weak in Q4 and Q1.”
FRED DICKSON, CHIEF MARKET STRATEGIST, D.A. DAVIDSON & CO. LAKE OSWEGO, OREGON:
“The Philly Fed was disappointing, a little less negative than last month. The one that was surprising was the dip in existing home sales.
“The economic data provided a dose of realism that the economy is still muddling along.”
“(The Philly Fed) remained in contractionary territory for the third straight month, on the ISM adjusted basis, consistent with industrial production data which showed manufacturing growth grinding to a halt. We had a similar small rebound in the Empire State survey, but still very weak and indicative of the national ISM data for July.
“Yesterday’s Beige Book, indicated manufacturing was growing at the end of the Q2 but very slowly. It really weakened from Q1. Global uncertainties are really weighing on our manufacturing sector.
“Home sales: That was a big surprise to me actually. I was expecting a pickup, a rebound in the market, based on the jump in pending home sales in previous month and in fact it went right in the other direction, more in line with the weak pattern of mortgage applications. So the housing recovery will be long and bumpy.”
PAUL MONTAQUILA, VICE PRESIDENT OF FIXED INCOME, SAN FRANCISCO-BASED BANK OF THE WEST:
“Treasuries prices turned higher on this news. The economic data could have set a much more positive tone on the economy, but instead they were a bit disappointing. The decline in June leading indicators was also sharper than forecast, adding to the somber tone set by the July Philadelphia Fed business activity index and the decline in June U.S. home resales.
“We’re waiting to see what we will get from the Fed. There are a lot of expectations for an extension of the timeline for low interest rates and they will have to address a potential third phase of quantitative easing one way or the other.”
MICHAEL SHELDON, CHIEF MARKET STRATEGIST, RDM FINANCIAL, WESTPORT, CONNECTICUT:
“Unfortunately all four economic releases today were on the soft side.
“The most important parts of the (Philly Fed) index are usually new orders and shipments, and new orders and shipments both improved on a month-over-month basis but remained negative. The biggest downside in the index is employment.”
DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:
“A trio of softer-than-expected data with the good news that at least Philadelphia Fed didn’t fall as much as last time and represents an uptick in the ISM equivalent, though still in contractionary territory and the uptick in home prices even amidst softer sales.
“(Existing homes) is really just a terrible report, with broad-based weakness. It really shows that the housing market is struggling. This could still be some pay back from the winter, but this report really shows that we are not really making a great deal of progress in housing even though conditions are relatively improved from a year ago. The housing market is still improving, it is just doing so at a very gradual pace.
“(Philly Fed) was also considerably weak. We are not seeing much of a rebound from the devastating June number. There is underlying softness in manufacturing. It probably understates the broader activity throughout the nation, but it still goes to show you that the weak trends are persisting.”
Americas Economics and Markets Desk; +1-646 223-6300