Vital Statistics:
Stocks are higher this morning on no real news. Bonds and MBS are down.
Homebuilder KB Home reported first quarter earnings that missed analyst estimates. Revenues dropped 5%, deliveries dropped 9% and average selling prices rose 4% to $500,700. Gross margins declined due to higher land costs and seller concessions.
“Consumers are working through affordability concerns and uncertainties related to macroeconomic and geopolitical issues, which are causing them to move slowly in their homebuying decisions,” said Jeffrey Mezger, Chairman and Chief Executive Officer. “Demand at the start of this Spring’s selling season was more muted than what we have seen historically, despite a healthy level of traffic in our communities. In mid-February, we took steps to reposition our communities to offer the most compelling value, and buyers responded favorably to these adjustments. Although we missed our sales goals for the first quarter, we are encouraged by the significant improvement in weekly sales and normalizing absorption pace over the last five weeks.”
Color me skeptical about the claim that geopolitical issues are causing people to move slowly in their homebuying decisions. (Honey, I want to buy a home, but I’m worried about Yemen). It sounds more like KB was offering upscale properties and they weren’t moving, so they moved down their price point which helped improve sales.
The S&P Flash PMI rose in February for the third straight month, although confidence in the economy is flagging. Manufacturing activity continues to weaken, presumably due to tariffs, however it has been weak for the past couple of years.
“A welcome upturn in service sector activity in March has helped propel stronger economic growth at the end of the first quarter. However, the survey data are indicative of the economy growing at an annualized 1.9% rate in March and just 1.5% over the quarter as a whole, pointing to a slowing of GDP growth compared to the end of 2024.
“Near-term risks also seem tilted to the downside. Growth is concentrated in the service sector as manufacturing fell back into decline after the frontrunning of tariffs had temporarily boosted factory output in the first two months of the year. Similarly, some of the March upturn in services was reportedly due to business picking up after adverse weather conditions had dampened activity across many states in January and February, which could prove a temporary bounce.
“Business confidence in the outlook has also darkened, souring further from the buoyant mood seen at the start of the year to one of the gloomiest readings seen over the past three years, largely caused by growing worries over negative impacts from recent policy initiatives from the new administration. Most widely cited were concerns about the impact of Federal spending cuts and tariffs.
“A key concern over tariffs is the impact on inflation, with the March survey indicating a further sharp rise in costs as suppliers pass tariff related price hikes on to US companies. Firms’ costs are now rising at the steepest rate for nearly two years, with factories increasingly passing these higher costs onto customers. Thankfully, from the Federal Reserve’s perspective, services inflation remains relatively subdued, but this reflects the need to keep prices low amid weak demand, which will harm profits.”
FWIW, I think the tariff issue is being overplayed a bit, but we’ll see. The complaints about government spending decreases are probably valid for government contractors, but should not impact anyone else. Much of that spending goes to non-productive uses, so the positive impact on growth was minimal to begin with. The loss of these therefore should be minimal as well.
