Gauge of US Business Activity Jumps to 7-month High, Order Backlogs Soar to 10-year High, New Home Sales Fall

- The Chicago PMI for December rose to 56.6 versus estimates of 51.7 and a reading of 52.9 in November.

- New Home Sales for November fell to 647K versus estimates of 717K and 711K in October.

BOTTOM LINE: The Chicago PMI, a measure of US business activity, unexpectedly rose this month to the highest level since June as new orders increased and businesses reduced stockpiles of unsold goods, Bloomberg reported. Booming exports may help sustain growth in manufacturing, economists said. The New Orders component of the index rose to 58.4, the highest since August, versus 53.9 the prior month. Moreover, the Order Backlogs component soared to 60.7, the highest since January 1998, versus 45.9 in November. The Prices Paid component fell to 63.8 from 76.2 the prior month and the Employment component fell to 49 versus 54.4 in November. This report is a big positive. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of record exports.

Sales of new homes in the US fell in November, Bloomberg reported. The median price of a new home fell .4% from year ago levels to $239,100. The number of homes for sale fell 1.8% to 505,000, the fewest in two years. The inventory to sales ratio rose to 9.3 months worth from 8.8 months worth in October. New Home Sales fell 28% in the Midwest, 19% in the Northeast and 6.4% in the South. They rose 4% in the West. I continue to believe new home construction will remain muted over the intermediate-term as builders work down inventories. I expect new home sales to bounce back next month, which should bring down inventories meaningfully with homes for sale at a 2-year low.