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THE COMING STORM: FLASH PMI, HOME SALES, UMICH

Investors stumbled toward the end of a holiday shortened week only to be handed three gloomy economic indicators, all of which were stymied by mounting economic uncertainties.

S&P Global released its advance "flash" February purchasing managers' indexes $(PMI.UK)$ for the manufacturing and services sectors.

In a switch from the norm, activity on the manufacturing side USMPMP=ECI picked up some steam, edging up 0.4 point to 51.6, just a hair north of consensus.

The services sector USMPSP=ECI, however, surprised analysts by sliding 3.2 points to 49.7, dipping into contraction territory for the first time since January 2023.

The composite reading USPMCF=ECI dropped 2.3 points to a barely expansive 50.4.

A PMI number greater than 50 indicates expansion in the sector. Below that level signifies contraction.

"The upbeat mood seen among US businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty," says Chris Williamson, S&P Global's chief business economist. "Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments."

Next, sales of pre-owned U.S. homes USEHS=ECI fell by 4.9% in January to 4.08 million units at a seasonally adjusted annualized rate (SAAR), according to the National Association of Realtors $(NAR.UK)$.

The decline erased December's 2.9% gain and landed 1% below the 4.12 million units SAAR analysts expected.

"Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve," writes Lawrence Yun, NAR's chief economist. "When combined with elevated home prices, housing affordability remains a major challenge."

Drilling down, sales single-family homes, which account for the lion's share of the total, tumbled 5.2%. Condo/co-op sales dripped 2.4.

The median home price dropped 1.7% and inventories increased; at January's rate of sales, it would take 3.5 months to sell every home on the market, up from 3.2 months in December.

Finally, the University of Michigan's (UMich) final take on February Consumer Sentiment USUMSF=ECI was a fair bit gloomier than originally reported, to the surprise of economists polled by Reuters.

The headline number slid 3.1 points to 64.7, the lowest level since November 2023.

Breaking it down, survey respondents' assessment of current conditions dropped 4.4%, while their near-term expectations dropped 4.9%.

The decline was attributable "in large part due to fears that tariff-induced price increases are imminent," says Joanne Hsu, director of UMich's Surveys of Consumers, who added that sentiment fell for Democrat and Independents, but held firm for Republicans.

Still, it echoes concerns raised by Walmart's WMT.N disappointing guidance on Thursday, which raised concerns over dampening consumer demand.

One-year inflation expectations were steady at 4.3%, a full percentage point hotter than the most recent core CPI reading, while five-year inflation expectations gathered heat, rising to 3.5% from 3.3%.

(Stephen Culp)

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