Instant view: Philly Fed weak, existing home sales drop

Reuters

NEW YORK (Reuters) - Factory activity in the U.S. Mid-Atlantic region grew much more slowly than expected in May, a survey showed on Thursda

EXISTING HOME SALES:

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Sales of previously owned U.S. homes fell in April, a trade group said on Thursday, in a sign that the country's housing market is struggling to recover from the recent financial crisis.

COMMENTS:

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., GREENWICH, CONNECTICUT.

"Jobless was better, then came this data, which was a bit weaker. The trend has been picking up as far as data being a bit weaker than expected.

"For the markets, there's been a theme change in the past two months. When looking at the data, the expectation was things may be starting to slow down, maybe a move toward defensive names, global growth seems to be ebbing somewhat."

ERIC GREEN, CHIEF ECONOMIST AND HEAD OF RATES STRATEGY, TD SECURITIES, NEW YORK

"It's pretty ugly. The Philly Fed index was a lot weaker than expected. New orders, shipments, unfilled orders, inventory, delivery time, all down quite sharply. Employees were up smartly, which is good, but the average work week was down. So you still had growth over the month but that growth has slowed pretty sharply, and that's also been reflected in the six month outlook.

"We are seeing some of the knock-on effects of what happened in March and April, which was the residual affect of the Japan earthquake hitting the production numbers, the big run-up in energy prices, and you're also seeing a bit of a soft patch given you're getting a rollover in inventory momentum."

"I'm not overly concerned because I think this gives way in the next couple of months. You've had a pretty smart drop in energy pieces and that has a pretty big effect on the Empire and Philly Fed survey given the mix of chemical industries and things of that nature. Also two sources of demand that will continue to drive manufacturing are exports and capital spending, which are looking very strong. I think this is a soft patch, but no more than that. I fully expect this to move the other way."

KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH, GFT, NEW YORK

RUDY NARVAS, SENIOR ECONOMIST, SOCIETE GENERALE, NEW YORK:

"The Philly Fed was a weak report across the board. Unlike the Empire report where they underlying looked pretty good, the underlying of the Philly Fed looked pretty soft.

"The housing data was weaker than expected. The housing market is still really going nowhere.

"The second quarter, especially April and perhaps May as well, is going to be marked by parts shortages from Japan. That hit the industrial production data last week and that was all due to autos. Whether (the Philly Fed weakness) is due to that is unknown. You could see a second quarter that was weaker than we were expecting but at the same time the third quarter, which was supposed to be softer than Q2, may come out firmer as those auto plants get back to full speed."

MICHAEL MONTGOMERY, ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:

"It's not bad, but it's far from inspirational. There is a shift to no change. The negatives are not exceptionally large. The main thing you have to keep in mind last month was exceptionally strong."

"This is not quite as bad it looks. If people are willing to hire, they are not that pessimistic."

"The ISM equivalent of this report is about 55.3, which is the ISM average back in November and December. It's clearly on an upswing but not as strong as we've seen in the past four months. This is disappointing more than anything else."

TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

"We're probably past the peak in regard to manufacturing activity, but we don't think manufacturing activity is stopping. We just think it is slowing a bit.

"This in no way suggests to us that we should expect manufacturing activity will cease to be an engine of growth in the recovery, we just think it's going to be less powerful.

"The regional manufacturing reports are sometimes prone to volatility and you looked at what happened earlier in the week with Empire, Empire wasn't as bad as it first looked. You have to take Philly Fed in the context of what are the other regional indexes telling you."

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

"Although pending home contracts had implied that sales of previously owned homes would rise in April (given two months of pending gains), existing home sales fell by 0.8% to 5.05mln from the downwardly revised sales rate of 5.09mln in March. April's figure falls beneath market expectations of a second month of increasing sales (consensus, 5.2mln) and is another piece of data diluting strength of the housing recovery. Compared to activity in April 2010, sales are 12.9% lower, but that percentage encompasses altered buying behavior."

MARKET REACTION: STOCKS: U.S. stock indexes slightly cut gains BONDS: U.S. bond prices cut losses FOREX: The dollar trimmed gains against the yen

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