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Econ Data Feels Inflation Pressures, KBH Mixed in Q2

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A flat trading market today broke mixed in the final minutes of the regular session, albeit modestly: the Dow hit the closing bell -0.21%, -72 points, while the S&P 500 halved that, -0.11% — missing a chance to put in a new closing high. The Nasdaq continued to put in fresh highs, +0.13%, on Tesla’s (TSLA - Free Report) best trading day in more than two months, +5.3%, while the Russell 2000 took the small-cap index to today’s winner’s circle, +0.33%.

During the regular trading session today, we saw a few surprises in economic data regarding productivity and the housing market. While Markit Purchasing Managers’ Indexes (PMI) for Manufacturing and Services moved in different directions for June, New Home Sales for May posted a notable drop instead of an expected gain.

We’ll start there: New Home Sales last month came in at 769K, down -5.9% sequentially for its lowest read in 12 months. Expectations were for 859K new homes sold last month, but higher price points hindered sales closings. The median price for a new home reached $374.4K, +17.8% year over year. Gains in the Northeast +33.3%) and the West (+6.7%) were countered by a flat read in the Midwest and -14.5% in what has been the most popular region, the South.

The survey has determined 330K new homes were available for sale last month, representing an increase of 4.8% sequentially. Compare this with yesterday’s Existing Home Sales for May, which cited similar challenges with pricing leading to fewer sales than expected. In neither case is there a notable drop in demand for new and existing housing, but buyers are folding their hands at present in hopes of improved price points at some point in the future.

KB Home (KBH - Free Report) , which reported fiscal Q2 earnings after today’s closing bell, signs off on these challenges in the housing market. The Los Angeles-based homebuilder posted $1.50 per share on $1.44 billion in quarterly revenues: much better than the $1.29 per share expected (and 55 cents reported in the year-earlier quarter), but missing the $1.48 billion expected on the top line. That said, sales were up 58% year over year.

The average selling price for a KB Home rose 13%, as net new orders skyrocketed 145% for the quarter. Clearly, strong demand prevails for new housing, as we saw in the monthly data from the U.S. government. But supply chain constraints are keeping a damper on profit potential in the most recent quarter.

PMI Manufacturing for June came in at at new all-time high: 62.6, up half a point from May and more than a full point from the consensus estimate. Sharp rises in outputs and orders continue, while supplier delays and workforce hires — along with the longest delivery times in recent memory — are providing headwinds. That said, even with input inflation now at record highs, goods producers continue to have a more-confident outlook.

PMI Services for June went the other direction: 64.8 from an expected 70.0, and down from May’s all-time high 70.4. While customer demand is rising and growth rates in new businesses and exports remain strong, the same employment hiring challenges exist on the services side. As service providers pass along price increases to their clients, wages and transportation costs have hit their second-highest pace since this survey began in October 2009.

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