Friday, January 30, 2015

Consumer Sentiment Highest in a Decade

According to the University of Michigan Consumer Sentiment Index, consumer sentiment rose to 98.1 in January, up 4.5 points from the previous month, the highest reading in a decade. The Index is up 16.9 points from January 2014.

The improvement to future expectations index led the increase, increasing 4.6 points to 91.0, followed closely by the index for present conditions, which increased 4.5 points to 109.3. The survey notes that gains in the past six months were as large among households with income under $75,000 as over that amount.

Inflation expectations were mixed. Respondents expect inflation over the next year to be 2.4%, down 0.4 percentage points from the previous month’s survey, and over the next 5 years to be 2.8%, consistent with the previous month.

U.S Economy Grew 2.6% in Third Quarter

Real GDP grew at a 2.6% seasonally adjusted annual rate according to the Bureau of Economic Analysis' preliminary estimate. GDP growth was weaker than the third quarter, but still signals a strong economy. Personal consumption expenditures (PCE) continued to drive growth, followed by an increase in private inventory investment. The deceleration in real GDP growth primarily reflected an upturn in imports, a downturn in federal government spending and decelerations in nonresidential fixed investment and exports.

PCE increased 4.3% in the fourth quarter, contributing 2.9 percentage points to total GDP. In comparison, third quarter personal consumption growth was 3.2%, contributing 2.2 percentage points to total GDP. Inventories rebounded in the fourth quarter, contributing 0.8 percentage points to total GDP, after subtracting 0.03 percentage points from third quarter GDP.

Fixed investment grew 1.9%, a weak increase compared to 8.9% growth in the third quarter. Investment in equipment drove the drag, decreasing by 1.9% compared to an increase of 11.0% in the third quarter.

Exports increased just 2.8% compared with an increase of 4.5% in the third quarter as the economy is starting to feel the effects of the strong U.S. dollar. Increased imports further contributed to the decrease in net exports, growing 8.9% compared with a 0.9% decrease in the third quarter.

Federal government expenditures decreased 7.5% in contrast to an increase of 9.9% in the third quarter. The decline was primarily due to a 12.5% decrease in national defense spending, compared with an increase of 16% in the prior quarter.

Read the BEA report.

Wednesday, January 28, 2015

FOMC: Strong Job Gains but Declining Inflation

The Federal Open Market Committee’s (FOMC) plans for increasing the target range for the federal funds rate is consistent with the December meeting, as expected. In its January 28 statement, the Committee continues to say that it can be patient in beginning to normalize the stance of monetary policy.

However, there are some changes to the language regarding the labor market and inflation, which make up the FOMC’s dual mandate. The FOMC’s outlook for economic expansion appears to be improving, as the statement now refers to the pace of expansion as “solid” rather than “moderate.” Furthermore, the Committee characterized job growth as “strong” compared with the “solid” job gains seen in the December meeting. But as the labor market improves, declines in energy prices, while boosting household purchasing power, led inflation to decline “substantially.” Despite the recent decline, the FOMC still expects inflation to rise gradually toward 2% over the medium term, once again calling the effects of lower energy prices “transitory.”

The three Committee members to vote against the FOMC monetary policy in December, Richard W. Fisher of the Dallas Fed, Narayana Kocherlakota of the Minneapolis Fed and Charles I. Plosser of the Philadelphia Fed, are not on the Committee for 2015.

Read the FOMC statement.

Tuesday, January 27, 2015

New Home Sales Rebound in December

Sales of new single-family houses in December rose to a seasonally adjusted annual rate of 481,000 according to the U.S. Census Bureau and Department of Housing and Urban Development. The December rate is 11.6% above the revised November rate of 431,000 and 8.8% above the year-ago rate of 442,000.

New home sales in three of the four regions increased this month. The Northeast increased 53.6%, the South rose 17.7% and the West rose 3.1%. However, sales in the Midwest declined 11.5%.

The median sales price of new homes sold in December was $295,500, down 0.3% from November. The average price was $377,800, up 9.6% from November.

At the end of December, there were an estimated supply of 5.5 months at the current sales rate.

Read the Census report.

National Home Price Steadily Decelerates

The 20-City Case-Shiller Composite gained 4.3% year-over-year in November, compared with a 4.5% gain in October, as the pace of home prices across the country continued to steadily decelerate. The 10-City Composite gained 4.2% in November from the previous year, down from 4.4% in October. The National Index recorded a 4.7% gain on an annual basis in November, compared to a 4.6% gain in October, the only index of the three to accelerate.

On a monthly basis, the 10-City Composite declined 0.3%, the 20-City Composites declined 0.2% and the National Index declined 0.1%.

Nine cities of the 20-City Composite (four cities of the 10-City) reported monthly declines in November. Chicago and New York were the primary contributors to the monthly decline, decreasing 1.1% and 0.8%, respectively, partially offset by a 0.8% increase in Tampa and a 0.6% increase in Miami.

Year-over-year, San Francisco increased 8.9%, the highest of the 20 cities, followed by 8.6% growth in Miami and 7.7% growth in both Las Vegas and Dallas. Cleveland reported the slowest year-over-year growth, increasing 0.6%, followed by a 1.5% increase in both New York and Minneapolis.

Read the S&P release.

New Orders for Durable Goods Continued Decline in December

New orders for durable manufactured goods decreased 3.4% to $230.5 billion in December, according to the U.S. Census Bureau. The decline, down four of the last five months, followed a 2.1% decrease in November. New orders excluding transportation decreased 0.8%; excluding defense, new orders decreased 3.2%.

Shipments of manufactured durable goods increased 1.1% this month, following two consecutive monthly decreases. December’s increase was driven by a 3.1% increase in transportation.

Inventories of manufactured durable goods, up twenty of the last twenty-one months, increased 0.5% to $410.8 billion – remaining at an all-time high.

Read the U.S. Census Bureau release.

Friday, January 23, 2015

Existing Home Sales Rebound Despite Low Inventory

Existing home sales rose 2.4% in December to a seasonally adjusted annual rate of 5.04 million. Sales of existing homes rose above 5 million for the sixth time this year. Exisitng home sales in November was downwardly revised to a seasonally adjusted annual rate 4.92 million. For the full year 2014, there were 4.93 million sales.

The median existing-home price increased 6.0% year-over-year to $209,500 in December, marking the 34th consecutive month of year-over-year price gains. Median home prices for 2014 rose to their highest level since 2007, although total sales fell 3.1% during the year.

Total housing inventory fell 11.1% in December to 1.85 million homes available for sale, and declined 0.5% from December 2013. There is currently a 4.4-month supply of total existing homes available for sale, down from 5.1 months in November.

Existing home sales weakened in two of the four regions, posting month-over-month declines of 3.5% in the Midwest and 2.9% in the Northeast, but increasing 9.8% in the West and 3.8% in the South.

NAR Chief Economist Lawrence Yun noted: “A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4% interest rates. Housing costs — both rents and home prices — continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.”

All-cash sales were 26% of transactions in December, one percentage point higher than in November yet 6 percentage points lower than December 2013.

First-time home buyers represent 29% of all buyers, down from 31% in November.

Read the NAR report.