August data for manufacturing, pending home sales bodes well for economy

August brought good news for both the manufacturing and housing industries, which translates into a positive outlook for the general economy, as well.

The Institute for Supply Management announced that the industry’s 18 consecutive months of decline ended in August, when the PMI for manufacturing registered 52.9 percent. That’s 4 percentage points higher than the 48.9 percent reported in July and the highest reading since June 2007, when the index also registered 52.9 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

August was also the fourth consecutive month of growth for the overall economy, since a PMI higher than 41.2 percent, over a period of time, generally indicates as much. The PMI has been at 42.8 percent or higher since May.

The National Association of Realtors also had encouraging news in August, reporting that the Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2 percent to 97.6 from a reading of 94.6 in June, and is 12.0 percent higher than July 2008 when it was 87.1. The index is at the highest level since June 2007 when it was 100.7 and pending home sale contracts have now risen for a record six straight months.

"Other buyers are taking advantage of low home values before prices turn higher," says Lawrence Yun, NAR chief economist. "Nationally, the typical mortgage payment now takes less than 25 percent of a middle-income family's monthly income to buy a median-priced home, with payment percentages so far in 2009 being the lowest on record dating back to 1970. As long as home buyers stay within their budget, mortgage payments will be very manageable."

The NAR estimates that about 1.8 million to 2 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit. Buyers have little time to act because they must complete the transaction by Nov. 30 to qualify for the credit. Unless extended, contracts signed but not completed by that date will not be eligible, as it is taking approximately two months to complete home sales in the current market.

The Pending Home Sales Index in the West the index jumped 12.1 percent to 112.5 and is 20.0 percent above a year ago. The Northeast index declined 3 percent to 78.8 in July but is 4.7 percent higher than July 2008. In the Midwest the index slipped 2 percent to 88.1 but is 8.1 percent above a year ago. In the South, pending home sales activity rose 3.1 percent to an index of 103.8 in July and is 12.0 percent above July 2008.