Cooling Demand Coupled with a Minor Monthly Increase in Prices for the UK Housing Market

After peaking in March 2016, annual house price growth in the UK has fallen to 3.3% in May 2017, according to the latest Halifax House Price Index. A 0.4% monthly increase in the price of houses between April and May contrasted with a 0.2% quarterly decrease. With prices remaining virtually unchanged over the past three months, the report suggests that the underlying trend for housing prices remains down (albeit at a moderate level). 

The report highlighted a weak market performance with UK home sales falling 0.3% between March and April coupled with a 0.2% decrease in mortgage approvals for house purchases (a key indicator of completed house sales) in the same period. The cooling demand is attributed to a combination of rising inflation, weak wage growth, and increases in stamp duty tax rates for buy to let and second home purchases. 

A 14 month trend of low supply continues into April, keeping the average number of properties for sale in estate agent's books at record lows. 

Martin Ellis of Halifax concludes, “The fact that the supply of new homes and existing properties available for sale remains low, combined with historically low mortgage rates and a high employment rate, is likely to support house price levels over the coming months.”

Solid Growth Reported in the Eurozone Retail Sector for May 2017

Eurozone retailers recorded an increase in like-for-like sales in May according to the latest IHS Markit Eurozone Retail PMI report. While positive overall, the data highlighted a country level discrepancy: encouragingly high levels of growth in Germany and France counterbalanced a continuing decline in retail sales in Italy.

The IHS Markit Eurozone Retail PMI (measuring month-on-month changes in like-for-like retail sales in France, Germany, and Italy) was measured at 52.0. Decreasing from 52.7 in April, the reading points to a solid though slightly weaker rise in sales for the month.

Conversely, sales were down on an annual basis and the data showcased across the board under performance by retailers. All three countries reported gaps between forecast and actual sales with the highest discrepancy recorded in Italy.  

Gross margins fell sharply as retailers were faced with a rise in average purchasing costs. Input price inflation was reported in all three economies, most markedly in Germany.

High levels of purchase activity were also reported, catalyzed by high sales volumes and contributing to a continuing increase in stocks of goods for resale.

Finally, the data showed a rise in retail sector employment, continuing a trend which began in November 2015.

Alex Gill of IHS Markit concludes, “Overall the data paint a positive picture of the euro area retail sector. However, a sharp fall in gross margins suggests the business climate remains challenging”.

Steady Economic Growth in the Eurozone Led by the "Big Two"

According to the latest data made available by IHS Markit, the eurozone continues to grow at a record pace. The final reading of the IHS Markit Eurozone PMI Composite Output Index for May 2017 remained at 56.8, unchanged from April's final reading. 

Output expansion in the zone was bolstered by the strong growth of new business while high levels of new orders spurred faster job creation, leading to a marked rise in employment. The manufacturing sector led the overall expansion with goods production rising at a rapid pace. 

This steady rate of growth is led by the "big two" nations, France and Germany. In Germany, growth was attributed to an increase in manufacturing production while in France, growth came as a result of a strong performance in the service sector. 

The IHS Markit Eurozone PMI Services Business Activity Index came in at 56.3, a slight decrease from 56.4 in April. According to the release, all "big four" economies (including France, Germany, Spain, and Italy) saw an increase in output, with the expansion of eurozone services business activity sparked by an increase in new orders. This increase also led to an increase in job creation and a corresponding increase in staffing levels. 

In conclusion, Chris Williamson, Chief Business Economist at IHS Markit, stated, "The final PMI readings add to mounting evidence that the eurozone is enjoying a strong second quarter, consistent with GDP rising at a 0.7% rate...The outlook for the eurozone economy therefore seem to be tilting to the upside and it seems likely that we'll start to see many forecasters' expectations for 2017 growth revised higher". 

Final reports on IHS Markit PMI readings for France and Germany in May 2017 are also available. 

More Mixed News on the US Economy

The IHS Markit Flash U.S. Purchasing Managers’ Index for May 2017 showed a moderate rebound in private sector economic activity. The Flash U.S. Composite Output Index rose to 53.9 from 53.2 in April, the largest increase since February. Driven by growing employment and a high level of new orders, the Flash U.S. Services Business Activity Index rose to 54.0.  New business growth has accelerated to its highest reading since the beginning of 2017, accompanying an increase in job creation. Average business costs also increased, mainly due to a rise in service sector input prices. Service sector input prices rose at the fastest rate since 2015. However, there was a marked decrease in the optimism that had permeated the service sector at the beginning of the year. Things were less positive in the manufacturing sector. Production, hiring and new orders all increased at the slowest pace since 2016. “Some manufacturers suggested that domestic clients had adopted a wait-and-see approach to investment spending. Meanwhile, new export sales increased only marginally in May, which pointed to a sustained drag from subdued external demand.”

According to a report by the National Association of Realtors, sales of existing homes fell more than anticipated in April 2017, attributed to a shortage of houses on the market and correspondingly high prices. However, while existing home sales declined 2.3 percent to a seasonally adjusted annual rate of 5.57 million units, the number of days that homes stayed on the market decreased 1.64% compared to April 2016. 

A report from the U.S. Energy Information Administration  states that U.S. oil refinery inputs averaged 17.3 million barrels per day during the week ending May 19, 2017, an increase of 159,000 barrels per day over than the previous week’s average. Gasoline production also increased, with an average of over 10.2 million barrels produced per day. U.S. crude oil imports decreased to an average of 8.3 million barrels per week and U.S. commercial crude oil inventories decreased by 4.4 million barrels from the previous week while gasoline decreased by 0.8 million barrels and distillates by 0.5 million barrels. 

European Manufacturing Jobs Added at the Highest Rate in Over 20 Years

The Eurozone has shown stable economic momentum, according to the IHS Markit Flash Eurozone Composite Purchasing Managers’ Index for the month of May. The Flash Eurozone PMI Composite Output Index remains at 56.8, unchanged from its final reading in April. The Flash Eurozone Services PMI Activity Index fell 0.2 points to 56.2, offset by the Flash Eurozone Manufacturing PMI which rose 0.3 points to 57. The Composite Output Index in France rose a full point to 57.6 and 0.6 points in Germany to 57.3. Employment and job creation also increased, corresponding to business optimism about the future.

Manufacturing output growth and exports increased at the highest rate in six years. Manufacturers hired employees at the fastest rate in over 20 years.

Price pressures remained elevated with an increase in output prices (the second fastest rate since July 2011). However, an ease in input cost inflation suggests a potential future decrease. Overall, these factors point to an anticipated second quarter increase in Eurozone real GDP of approximately 0.6%. 

Fair Warning for Economic Developers on the High Risks of the Internet of Things

The International Data Corporation estimates that there were 15 billion Internet of Things (IoT) endpoints at the end of 2016. They expect the number of connected items to grow to 82 billion by 2025. Spending on IoT reached $737 billion at the end of 2016. By 2020 the amount invested in IoT is expected to be $1.3 trillion. The major investing industries are manufacturing, transportation and utilities. Economic developers often consider IoT to be a hot prospect.

But a new report from Cisco Systems reveals that the pursuit of the IoT reward comes with a lot of risk. "Sixty percent of IoT initiatives stall at the Proof of Concept stage and only 26 percent of companies have had an IoT initiative that they considered a complete success."  Interestingly, even the 26% success number is highly uncertain -- 35% of IT executives thought that their IoT projects were complete successes, while only 15% of business executives thought that their IoT projects were complete successes. One-third of projects got all the way to completion and were still considered failures. 

The Cisco report offers key findings that, frankly, are not different from lessons learned from primitive enterprise initiatives. For example: human factors matter, cooperation improves the likelihood of success, successes offer payoffs, failures offer lessons for the future. (Cue Casablanca clip.)

One of the lessons for the future from these failures for economic developers is that the cool IoT business that you attract today may being laying off employees in the not so distant future. When a locality attracts a business, especially if there are incentives and workforce programs implemented in the process, it is investing in the business along with the owners of the company. Considering the risk of the business (along with the trendiness of the buzzword) is important.

The internet is here to stay and IoT is clearly the wave of the future. But there are a lot of rough seas and wrecks ahead for IoT investors, including employees and communities.

Lower New Home Prices Aren't Enough to Sell More Houses

According to data from the U.S. Census Bureau, new home sales fell in April by 11%, dropping to a seasonally adjusted annual rate of 569,000. This marks a decrease from a revised rate of 642,000 in March. The April number is much lower than expected.

The median sales price of new houses sold in April 2017 was $309,200. This means that builders were cutting prices by 3%, but the lower prices weren’t sufficient to increase sales. Compared to this time last year, the median price of a new home is down almost 4% while sales of new homes are up only 0.5%.

The increase in new home sales over the last year has all occurred in the Midwest and the South. Sales in the West and Northeast are down. Between March and April, sales of new homes dropped 26% in the West.

German Business Climate at Record High

Results of the German Center for Economic Studies' May 2017 Ifo Business Climate Survey show a high level of economic optimism among German businesses. The Ifo Business Climate Index rose to a record high of 114.6 points from a previous level of 113 points last month, the highest reading on record since 1991. German companies raised their estimates of both the current business situation and future business expectations. The rise was especially high in manufacturing, with capital goods manufacturers planning to increase both production and prices. In wholesaling, business expectations were optimistic while the index for assessments of the current business situation declined, with retailers making small downward adjustments. In construction the index increased, corresponding to an increase in both construction activity and optimism for the future business climate. Combined with other economic factors, these results suggest an economic growth of 0.6% in the second quarter.

Overall and for Manufacturing in Particular the US Labor Market Tightens

The US Labor Department reported that jobless benefits fell slightly in the second week of May 2017, reflecting tightness in the labor market. Initial claims fell to the 232,000 level, dragging the four week average down to 240,750. The total number of people seeking unemployment insurance also fell, corresponding to the record low unemployment rate.

The US Philadelphia Fed Business Outlook Survey reports that regional manufacturing activity has continued to grow in the month of May 2017. The survey also showed a rise in overall employment and work hours and all broad indicators improved or remained constant at high levels, pointing to expectations for further expansion.

UK Retail Sales Rise in April

According to a report by the UK's Office for National Statistics covering retail sales in Great Britain for April 2017, the retail sales increased by 2.3% while average prices fell to 3.1%.