The Independent Market Observer

Monday Update: Housing Better Than Expected, Other Indicators Disappoint

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Dec 24, 2018 10:27:33 AM

and tagged In the News

Leave a comment

Monday updateLast week was a busy one on the economic front, with several reports on housing, a look at durable goods demand, and the consumer income and spending report. This week is a short one, due to the Christmas holiday, but there are a couple of economic reports worth paying attention to.

Last week’s news

On Monday, the National Association of Home Builders survey showed another unexpected drop, to 56 for December. This result was worse than a small expected increase to 61 and down from 60 in November, which itself was a surprise drop from 68 in October. This suggests that the housing market may well continue to weaken.

The housing starts report, which was released on Tuesday, was more constructive. Housing starts rose from 1.228 million in October to 1.256 million for November, against an expectation for a flat result and after a small increase in the prior month. This suggests that actual activity remains relatively healthy despite the drop in sentiment.

On Wednesday, the existing home sales report also beat expectations. Sales rose from 5.22 million in October to 5.32 million in November, against an expected small decline. While housing in general has certainly slowed over the past year, that slowing trend may be moderating.

Also on Wednesday, the Federal Reserve Open Market Committee concluded its regular meeting with a press conference. As expected, the Fed raised its baseline rate by 25 basis points once more. But Chair Powell indicated that further increases were likely on track for 2019, significantly disappointing markets. Hoping for a more dovish stance, markets reacted negatively.

On Friday, the durable goods orders report was released. The headline index rebounded substantially from last month, although by less than expected. It went from a 4.3-percent decline in October to a gain of 0.8 percent in November, on an increase in aircraft orders. This headline index is notoriously volatile, as we can see. The core index, which excludes transportation and is a much better economic indicator, disappointed. Here, we saw a decline of 0.3 percent, although this was partially offset by an upward revision to October’s growth from 0.2 percent to 0.4 percent. This may be further evidence that business investment is slowing, which would be a headwind for 2019 growth.

Finally, also on Friday, the personal income and spending report showed that personal income continued to grow. It rose by 0.2 percent in November, down from 0.5-percent growth in October and below expectations of 0.3-percent growth, on slower job and labor demand growth. Personal spending growth also declined. It went from an upwardly revised 0.8 percent in October to 0.4 percent in November, on a decline in gasoline prices, which will offset rising retail sales. This remains a healthy level of spending growth, although it is becoming less well supported by income growth.

What to look forward to

On Wednesday, the Conference Board Consumer Confidence Index is expected to pull back further. It is likely to go from 135.7, which remains close to the almost two-decade high of a couple of months ago, to a still very high 133.6, on the recent stock market turbulence and rising political concerns. Even with the further pullback, confidence would remain close to the highest levels in the past 20 years and would be supportive of continued growth.

Also on Wednesday, the new home sales report is expected to improve, from 544,000 to 567,000, which would be in contrast to the weak home builder sentiment survey from last week. If the number comes in as expected, it will signal that while housing growth continues to slow, the downtrend may not be quite as bad as the recent data suggests.

Thanks for reading and have a great Christmas week!


Subscribe via Email

Crash-Test Investing

Hot Topics



New Call-to-action

Conversations

Archives

see all

Subscribe


Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®