A look behind at the December 16 gives the sense of data sources trying to get things out of the way before the holidays, especially on Friday. Although there were some disappointments in the numbers, there were also a few upside surprises. On net, the data was more-or-less in line with further moderate expansion in the fourth quarter as the bulk of the November numbers are now out of the way.
The NAHB/Wells Fargo Housing Market Index for December reached 76, a 6 point gain from the prior month and the highest 77 in June 1999, exceeding even the heady days of the housing boom before the recession. The number should be taken with caution as it is mainly in strong sales of single-family home at a pace that is unlikely to last into January. However, it does point to robust underlying demand for new construction and consumers’ willingness to purchase it while mortgage interest rates are low.
Housing starts and permits issued rose in November which is a little unusual this time of year when construction normally cools along with the weather. Nonetheless, there have been a lot of presales of homes that need to be built and demand for new homes while mortgage rates are good.
Sales of existing homes for November dipped to 5.35 million units (SAAR) from 5.44 million units in October, but were up from the 5.21 million in November 2018 when the near-term peak for mortgage rates depleted sales. To some extent sales could be softer simply because there are limited supplies of the more sought-after units in affordable price ranges. Some consumers have opted for new construction with stocks so low. A sense of urgency may be present to take advantage of low mortgage rates. Certainly price increases are restrained by consumers seeking the best affordability in spite of low rates.
The final University of Michigan Consumer Sentiment Index for December was essentially unrevised at 99.3 and was the second highest for 2019 below the 100.0 in May. Consumers are shrugging off the negative news cycle and focusing on the tight labor market. Present conditions are view as the best since December 2018 and the outlook for six months from now is mildly optimistic. This bodes well for continued consumer spending in the fourth quarter. The dip in inflation expectations in December bring both the 1-year and 5-year measures uncomfortably low at 2.3% and 2.2%, respectively. If the FOMC had not already indicated that the strength in the labor market was reason enough to pause in cutting short-term rates while inflation remained below the 2% target, this might be more disturbing. However, there’s a long wait until the FOMC meeting at the end of January and the next Survey of Consumers from the University of Michigan could well bring this a tad higher. In any case, prices for gasoline have been on the decline in the past few months and that tends to lower inflation expectations as well as raise confidence and improve discretionary spending.
Initial jobless claims in the week ended December 14 fell 18,000 to 234,000, retracing some of the 49,000 jump higher in the prior week. Further unwinding can be expected in the next week or two. In the meantime, the insured rate of unemployment in the December 7 week was unchanged at 1.2% where it has essentially been since May 2018.
The data on Job Openings and Labor Turnover (JOLTS) in October is a bit stale after the solid November Employment situation. Nonetheless, it tells a tale of still plentiful job openings, a good pace of hiring, relatively low layoff activity, and workers voluntarily leaving one job for another. While Chair Jerome Powell doesn’t want to call the labor market tight, it is hard to not do so.
The more current numbers on state and regional unemployment and payrolls show that those areas with the largest share of the labor market are experiencing unemployment rates in line with the national average and payrolls gains that suggest those on workers margins are getting their chance to (re)enter the workforce.
Industrial production and capacity utilization in November rebounded 1.1% as production came back on line after the strike at GM ended in late October. Manufacturing was up 1.1% with motor vehicle production 12.4% higher. Utilities output rose 2.9% was wintry weather arrived in many parts of the US. Mining was down 0.2% as weak energy prices and reduced demand are holding down production.
The first surveys for the manufacturing sector in December were from the New York, Philadelphia, and Kansas City Feds. Although the general business activity index rose slightly to 3.5 for New York, the Philadelphia measure was down sharply to 0.3. Both remain at least narrowly expansionary. However, the Kansas City Fed’s Manufacturing Index fell to -8 in December, deepening the recessionary conditions of the past six months and falling to the lowest since -10 in February 2016. The downturn for the broader factory sector looks to remain in place at the moment.
The only survey for the service sector reported in the week was the December New York Fed Business Leaders Survey. Its activity index pointed to mild but steady expansion at 3.0 after 2.9 in November. The services surveys don’t track the ISM Non-Manufacturing Index particularly well, but this is a positive sign for the next report.
The third estimate of third quarter GDP was unrevised at the headline at up 2.1%. Most of the revisions in the details were small and offsetting. The main point is that personal consumption expenditures were revised up. With the fourth quarter already advanced, the question is if personal consumption will hold up for the fourth quarter? The data on November personal income and spending suggests it will with continued modest gains in incomes and a steady pace of spending. The PCE deflator has yet to move the needle regarding tame inflation readings. We are still waiting on whatever lagged effects the three rate cuts in July, October, and September may have.
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