KEY DATA: Case Shiller (Monthly): -0.3%; Annual: +9.3%/Paychex: up 0.3%

IN A NUTSHELL:  “Small businesses are hiring but the improving labor market conditions are not translating into booming home sales or prices.”

WHAT IT MEANS:  Another day, another sign that economic conditions are improving but not across the board.  Today’s fun numbers spoke about housing prices and small business hiring.  In May, home prices took a step backward, according to the S&P/Case-Shiller home price measure.  The seasonally adjusted 20-city index fell between April and May with fourteen of the twenty cities posting declines.  In April, only four cities saw home prices fade.  Looking over the year, prices are still up strongly, but the rate of gain is decelerating sharply.  It had peaked in November 2013 at 13.7%, so the increase is off one-third.  That said, the increases are still impressive with only New York, Charlotte and Cleveland having home costs increase by less than five percent.

While housing seems to be in a lull, hiring is not.  The Paychex/IHS Small Business Hiring Index rebounded from a spring thaw and is closing back in on the record high it posted in April.  Except for the West South Central, which includes Texas, all regions were up nicely over the year.  The Mountain and Midwestern regions led the way with somewhat more modest gains being recorded along the East Coast.

MARKETS AND FED POLICY IMPLICATIONS: It just seems that when it comes to breaking out of its slow growth pattern, if it isn’t one thing that restrains activity it is another.  When manufacturing came around, housing and the labor market lagged.  Then housing started to rebound, but jobs and incomes were not growing rapidly.  Now that firms are hiring, the housing market is starting to stumble.  Will we ever get things going all at once?  Maybe, but not right away.  Still, the key remains wages and with small business hiring picking up, that bodes well for income growth.  As for the housing situation, I differ from many of my colleagues.  While others bemoan the rising prices as a problem for first-time buyers, I cheer rising prices because they are lifting people out of the negative equity/minimal equity trap.  Without enough equity to buy another home, families are basically “home bound”.  The normal churn in the market, where current owners move around, is limited.  The more prices rise, the more households can move.  I think adding to equity is a more important factor in getting the housing market back to normal than keeping prices low so new buyers can enter.  But that is just me.  Anyway, it is still earnings season and with geopolitical concerns lurking, these reports are not likely to move the markets much.  And let’s not forget that the Fed has started its two-day meeting.  Not much news is expected tomorrow, when the FOMC meeting ends, but it still hangs over the markets.