US new home sales have dropped to a one-year low.

Purchases of new single-family homes fell 5.9% in May, to an annualised rate of 769,000. April’s figures were revised lower too, to 817,000, showing a steeper monthly fall.

Economist had expected a small rise in May, so this is quite a substantial miss.

The report also showed that median house prices hit a new record.

The fall in sales suggests that the sharp rise in prices in recent months, and the low number of properties available, are weighing on the market.

The surge in raw materials earlier this year, notably lumber, has pushed up construction costs and encouraged some builders to put projects on hold [lumber prices have since dropped back].

Demand for homes also surged after the Covid-19 lockdown led to more home working, and home-schooling, with people looking for larger homes, perhaps further from their place of work.

That impact could now be fading, through, as vaccinations lead to a return to more normal patterns.

Bloomberg says:

Shipping bottlenecks and higher input prices have held back homebuilding, contributing to skyrocketing prices for the limited supply of homes available. A silver lining of the report was data showing new-housing inventory continued to increase, though about a third of those homes have yet to be built.

Ian Shepherdson at Pantheon Macroeconomics said the sales drop might be a sign that demand in the suburbs has fallen as Covid-19 fears have faded, going so far as calling the end of the boom. By contrast, Stephen Stanley at Amherst Pierpont Securities calls it “mostly an anomaly.”

The rollicking growth across the US private sector has slowed a little, as manufacturers battle with lengthening supply delays and firms struggle to hire staff.

Growth slowed at both service sector firms and manufacturers this month (but remained a healthy pace), as input costs remain very high, and supply chains creak under high demand.

That’s according to IHS Markit’s flash US composite PMI index, which measures activity in the private sector, and which has dropped to 63.9 from May’s 68.7.

That level still shows substantial growth, although it also suggests a slight cooling after surging this year [50 points shows stagnation].

The survey of purchasing managers found that activity growth moderated at both manufacturing and service sectors, with goods producers hampered by significant supplier delays and both sectors reporting difficulties finding qualified workers.

The manufacturing PMI hit a record high, though this was partly due to the recent surge in prices of raw materials and other costs, with average supplier delivery times hitting a record “by some margin”.

Markit reports that new US business growth remained marked during June, although it did drop to a three-month low.

And price pressures are also racing along - input price inflation softened slightly but was still the second-fastest on record.

Manufacturers continued to note rapid increases in raw material and fuel costs, whilst service providers highlighted higher wage bills to attract workers plus greater transportation fees and fuel costs.

And (as in the UK earlier) firms are passing these costs onto customers

Higher costs were commonly passed on to clients through a steep rise in output charges during June. The increase in selling prices was the second sharpest since data collection began in October 2009.

Companies also say they’re struggling to hire suitably trained candidates for current vacancies [suggesting a skills mismatch between the many vacancies on offer, and the people looking for work].

The solution, though, could be to raise wages.... and there are signs in the PMI survey that this is happening.

Markit says:

Service providers stated that wage costs and additional transportation fees pushed up cost burdens, which rose at the second-fastest pace on record.

Although the rate of job creation remained strong overall, backlogs of work grew this month, at one of the fastest rates seen in the last decade.

Chris Williamson, chief business economist at IHS Markit, explains what’s going on:

“The early PMI indicators point to further impressive growth of the US economy in June, rounding off an unprecedented growth spurt over the second quarter as a whole.

“While both output growth and inflows of new orders have come off their peaks in both manufacturing and services, this is as much due to capacity constraints limiting firms’ abilities to cope with demand rather than any cooling of the economy.

“Although price gauges have also slipped from May’s all-time highs, it’s clear that the economy continues to run very hot. Prices charged for goods and services are still rising very sharply, record supply shortages are getting worse rather than better, firms are fighting to fill vacancies and manufacturers’ warehouse stocks are being depleted at a worrying rate as firms struggle to meet demand.

“While the second quarter will likely represent a peaking in the pace of economic growth, a concomitant peaking of inflation is far less assured.”

The technology-focused Nasdaq has hit a fresh record high at the start of trading in New York, as investors continue to drive up shares in tech stocks.

The Nasdaq Composite has opened 0.3% higher at 14,296, up 43 points.

Microsoft opened a little higher, currently up 0.1% at $265.80, after yesterday hitting a $2trn valuation for the first time ever.

That made Microsoft just the second publicly traded American company, after Apple, to achieve this huge valuation.

As CNN explains:

Microsoft’s market capitalization topped $2 trillion during trading on Tuesday, and closed just $300 million shy of that mark. Its stock on Tuesday climbed 1.1% to $265.51.

The company reached the $2 trillion milestone just over two years after it first passed the $1 trillion market cap mark.

Covid-19 helped get it there. The pandemic meant people were spending more time on their devices, boosting demand for Microsoft’s computers, gaming systems and cloud computing platform. And a stock market rally — along with the success of tech companies in particular — lifted its shares.

The US current account deficit has hit a 14-year high, as America’s economy pulled in more imported goods as its recovery gathered speed.

The current account deficit widened by $20.7bn, or 11.8%, to $195.7bn in the first quarter of 2021, up from $175.1bn in the fourth quarter of 2020.

That was the largest shortfall in the current account since the first quarter of 2007.

It lifts the deficit to 3.6% of GDP, up from 3.3% in Q4, the Bureau of Economic Analysis reports.

America’s widening trade gap was partly responsible, with imports growing faster than exports as the US economy rebounded strongly from the pandemic.

While goods exports rose by $24.5bn, to $408.6bn, this was outpaced by a $39.9bn jump in goods imports, to $677bn.

The BEA says:

The increases in both [goods] exports and imports reflected increases in nearly all major categories, led by industrial supplies and materials, primarily petroleum and products, that were partly offset by a decrease in automotive vehicles, parts, and engines.

Imports of services increased $1.8bn to $120.2bn, mostly due to a rise in sea freight transport. Exports of services increased $1.1bn to $175.9bn, led by personal travel.

Thousands of leaseholders will be refunded unfair ground rents and allowed to buy the freehold of their property at a discounted price after a crackdown on property developers by the competition watchdog.

Persimmon Homes and Aviva have agreed to offer the refunds after the Competition and Markets Authority (CMA) uncovered “troubling evidence” that leasehold homeowners and prospective buyers were overcharged and misled by the UK’s biggest housebuilders.

Campaigners described the new commitments as “life-changing” and a “massive milestone” in the battle to secure a fair deal for property buyers, and called for other developers and freeholders to follow suit.

Aviva, an insurance group that bought freeholds from developers, has agreed to remove ground rent terms that are considered unfair and repay homeowners whose rents doubled.

Persimmon has agreed to offer leasehold homeowners the opportunity to buy the freehold of their property at a discounted price, and will make repayments to some homeowners who have bought their freeholds.

Here’s the full story:

Unions have criticised Lloyds Banking Group as it announces the closure of 44 more branches across England and Wales this year.

The Unite union says the move is a “bitter blow for customers, staff and local communities”, at a time when people need support from the financial services sector more than ever.

Unite national officer, Caren Evans, said:

“The decision by Lloyds Banking Group (LBG) to further erode its presence within our communities is baffling. The closure of 44 more bank branches will deny our communities of essential services such as access to cash and experienced highly trained staff. A local ATM is not a suitable alternative to a staffed bank branch.

In recent times LBG has spent significant resource to sell its message of ‘Helping Britain Recover’. Unite seriously question how this decision to walk away from local communities promotes this message at a time when the customers will rely on the financial services sector support more than ever.

According to Unite, 166 full-time equivalent staff will be affected by the decision to close 29 Lloyds Bank and 15 Halifax branches in 2021. Unite says that Lloyds has given the union a commitment that most staff affected will be redeployed, with some voluntary redundancies.

It takes the total number of Lloyds closures this year to 100.

Lloyds says that it is seeing “significantly” fewer transactions at these locations, at a time when many customers are moving to electronic banking instead.

Vim Maru, retail director for Lloyds Banking Group, said Lloyds digital banking customers had grown by over four million in five years, to almost 18 million, including 13.6m active app users.

“This means that, like many businesses on the high street, we must change for a future where branches will be used in a different way, and visited less often.

“We’ll continue to invest in our high street presence, as this week we’re opening a new concept Bank of Scotland branch in Edinburgh, the only bank to take up residence in the new St James Quarter.

The Evening Standard have a list of the branches being closed.

IHS Markit’s Chris Williamson also warns that the surge in UK growth may have peaked (as the composite PMI dipped to 61.7 this month, from May’s 62.9, showing slightly slower growth).

Williamson adds that inflation could rise further over the Bank of England’s 2% target (it hit 2.1% in May), because firms are seeing input costs, and their own output prices, rising at unprecedented rates.

“Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound very sharply from the first quarter’s decline.

There are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May’s record performances, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.

However, inflation worries have continued to intensify. Record levels of the survey’s price gauges and the further development of capacity constraints hint strongly that consumer price inflation has much further to rise after already breaching the Bank of England’s 2% target in May.

Employment growth at UK companies has surged this month as companies struggle to handle rising demand as the economy emerged from lockdown this spring.

That’s according to the latest survey of purchasing managers at UK firms, from data firm Markit.

It found that companies are responding to rising workloads by taking on extra staff this month, at the fastest rate since its survey began in 1998.

The ramping up of new business increased demand for staff at services firms in June, Markit says. Jobs growth at services companies was only fractionally below the record posted seven years ago, following the recent reopening of hospitality venues, leisure sites and many shops.

Manufacturers also reported strong jobs growth, only slightly below May’s record, as firms “scaled up workforce numbers in response to surging workloads.”

This suggests that the recent recovery in the jobs market is continuing (company payrolls rose by almost 200,000 in May, and the jobless rate fell to 4.7% in February-April)

The survey also found that some companies are lifting wages as they struggle to attract staff, says Chris Williamson, chief business economist at IHS Markit.

“Although businesses also reported a record increase in employment during June, many firms continued to report a lack of capacity to meet the recent surge in demand, often due to staff and supply shortages.

The survey also found growing evidence of labour shortages feeding through to higher wage costs, which could add to worries that the recent spike in inflation could prove stickier.”

Overall, new orders continued to surge, with marked increases seen at services firms and manufacturers.

However, growth in new export orders was much softer than that seen for total new business, with a second successive drop in services new business from abroad.

Companies also reported that inflationary pressures are rising.

Markit’s gauge of input cost inflation accelerated for the fifth month running, and was the joint-fastest on record, equal with that seen in June 2008.

This is leading companies to raise their own prices, with the rate of output price inflation hit a fresh record high for the second month running.

The overall ‘flash’ UK composite PMI, which tracks manufacturers and services companies, dipped slightly to 61.7 this month from May’s 62.9.

That suggests a slight cooling in the pace of the recovery, but still shows strong growth:

• Flash UK Services Business Activity Index June: 61.7, 2-month low (May final: 62.9)
  
• Flash UK Manufacturing Output Index June: 62.0, 2-month low (May final: 63.0)
• Flash UK Manufacturing PMI June: 64.2, 2-month low (May final: 65.6)

But, some manufacturers reported that production was restricted to some extent this month by severe supply-chain disruption. Vendor delivery times worsened, towards the trough seen in the first lockdown in April 2020.

Duncan Brock, Group Director at CIPS, says:

“The month of June offered abundance in terms of rapid growth and new orders along with the highest levels of job creation since 1998 in private sector business. The lockdown lid was lifted on depressed sales and marketplaces buzzed with activity and optimism.

“It was only struggling supply chains that constrained further expansion. The manufacturing sector experienced longer delivery times and more shortages for items such as semi-conductors, preventing many businesses from meeting demand. Some supply chain managers increased forward buying activities to beat future delays but only served to add to the lengthening times for their goods.

“As materials were increasingly hard to come by, they once again became more expensive. Record cost inflation last seen in 2008 filtered through to increasing output costs as manufacturers were unable to absorb these rapid rises any longer. In service businesses, consumers were hit with considerably higher prices for food and hospitality, increasing the threat of soaring inflation in the UK economy this summer.”

The eurozone recovery is strengthening, with business growth accelerating at its fastest pace in 15 years this month.

The reopening of Europe’s economy after lockdowns, and the progress in the Covid-19 vaccine rollout, is boosting growth and confidence, and unleashing pent-up demand, according to the latest data from IHS Markit.

It’s Eurozone Composite PMI has jumped to 59.2 in June from 57.1 in May, its highest level since June 2006, showing rapid growth (anything over 50 indicates expansion).

It suggests that the euro area is recovering strongly after falling into a double-dip recession earlier this year.

Chris Williamson, Chief Business Economist at IHS Markit, explains:

“The eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.

“Virus containment measures have been eased to the lowest since last September and are set to be reduced further in July to the lowest since the pandemic began.

Vaccination programmes are also making impressive progress. This has not only facilitated greater activity in the service sector in particular, but the brightening prospect of life increasingly returning to normal has also pushed confidence to an all-time high, fueled greater spending and encouraged hiring.

“The data set the scene for an impressive expansion of GDP in the second quarter to be followed by even stronger growth in the third quarter.

Eurozone firms reported that new orders accelerated at the fastest pace since June 2006.

Manufacturing continued to lead the upturn, with the twelfth successive month of output growth, while the service sector continued its strong recent recovery.

• Flash Eurozone Services PMI Activity Index rose to 58.0 from 55.2 in May, a 41-month high.
• Flash Eurozone Manufacturing PMI Output Index rose to 62.4, from 62.2 in May, a 2-month high
• Flash Eurozone Manufacturing PMI at 63.1, unchanged from May

Both Germany and France have seen a surge in private sector activity, today’s PMI reports show:

But, Markit’s flash eurozone PMI survey also shows that inflationary pressures are rife as supply chains struggled.

Prices charged for goods and services rose at an unprecedented rate this month, with supply struggling to meet in demand. There was also a record rise in work backlogs, a further near-record lengthening of supply chains, and the increasingly widespread depletion of warehouse inventories.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Britain’s competition watchdog has declared a win for thousands of people caught up in the UK’s leasehold scandal.

The Competition and Markets Authority has secured formal commitments from investment group Aviva and housebuilder Persimmon that will help customers who bought homes on leasehold, rather than owning the freehold.

Aviva is one of several investment companies who bought freeholds from housebuilders.

Some leaseholds on new developments stated that ground rents would double every 10 years.

This left leaseholders trapped in spiralling ground rent contracts, making some homes unmortgageable, and leaving owners unable to move and facing hefty bills - prompting the government to bring forward reforms:

Aviva has agreed to remove controversial and unfair ground rent terms that saw the ground rents paid by leaseholders double every 10 or 15 years, and to repay those who have lost out through those rising ground rents.

The CMA explains:

• Aviva will remove from leasehold contracts certain clauses which were doubling the ground rents payable by leaseholders. It will also remove terms which were originally doubling clauses and have been converted into RPI-based ground rent terms. Doubling clauses that cause ground rents to double every 10 to 15 years mean people can often struggle to sell or mortgage their homes. They can also affect leaseholders’ property rights. Where Aviva is the current freeholder, those leaseholders’ ground rents will revert to the original amount – i.e. when the property was first sold – and this will not increase over time.
  
  
• Aviva has also agreed to repay homeowners who were affected by these doubling ground rent clauses. This means that, where ground rents had increased, people will be refunded the excess money they had paid over this time.

Persimmon Homes has agreed to allow leasehold house owners the opportunity to buy the freehold of their property at a discounted price capped at £2,000.

This addresses concerns raised by consumers with the CMA, and local Trading Standards, that they were led to believe they could buy their freehold at a certain price, only to find out later that this price had increased by thousands of pounds with no warning.

Persimmon, which stopped selling leasehold houses in 2017, has agreed to:

• An extension of its existing Right to Buy scheme to cap the purchase price of a freehold at £2,000. This extended scheme will apply to any house leases sold on or after 1 January 2000 and runs until 31 December 2026;
  
  
• Customers who have already acquired their freeholds from Persimmon under the existing Right to Buy scheme, and who still own the freehold, can apply to be reimbursed for the difference between the price paid and £2,000;

Persimmon is also extending its Reservation Period for home buyers from 35 days to 42 days.

Last year the CMA launched enforcement action involving Persimmon, Barratt Developments, Countryside Properties and Taylor Wimpey, into whether they had broken consumer protection law in relation to leasehold homes. It is also looking into other investment firms who have bought freeholds.

Today, it is urging other housebuilders and investors to follow Aviva and Persimmon’s lead.

Andrea Coscelli, Chief Executive of the CMA, said:

This is a real win for thousands of leaseholders – for too long people have found themselves trapped in homes they can struggle to sell or been faced with unexpectedly high prices to buy their freehold. Now, they can breathe a sigh of relief knowing things are set to change for the better.

It’s good that Aviva and Persimmon have responded positively to this investigation, enabling these issues to be fixed for leaseholders. But our work isn’t done. We now expect other housing developers and investors to follow the lead of Aviva and Persimmon. If not, they can expect to face legal action.

Also coming up today

Flash PMI surveys from businesses in the UK, Europe and the US will show whether the economic recovery is holding up this month.

The UK’s travel industry is holding a day of action to put pressure on the Government to reopen the sector and provide tailored financial support to businesses.

Events are planned outside the parliaments in London and Edinburgh, and in cities and airports around the UK.

Industry body Abta estimates that up to 195,000 jobs have been lost or are at risk within the UK travel industry, while a survey of members found more than half did not have enough money to survive more than three months in current conditions.

Pharmaceuticals group GlaxoSmithKline is holding a capital markets day, where chief executive Emma Walmsley will update investors on her plans to restructure the company into a pharmaceuticals-and-vaccines business, dubbed “New GSK”, and a consumer healthcare business.

It’s a crucial day for Walmsley, since New York-based Elliott Management took a multibillion-pound stake in GSK in April to push for change, with some investors concerned over slow progress with the drugs pipeline.

My colleague Julia Kollewe explains:

The head of Britain’s second-biggest drugmaker will present a 10-year outlook to shareholders and analysts, under pressure from an aggressive US hedge fund to demonstrate that she is the right person to lead the company beyond its breakup next summer.

The agenda

• 9am BST: Eurozone flash purchasing managers index for services and manufacturing, June
• 9.30am BST: UK flash PMI
• Noon: US weekly mortgage applications
• 3pm: US new home sales
• 3pm BST: US flash PMI