The Independent Market Observer

Monday Update: Housing Slowdown Continues

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Jan 28, 2019 4:10:52 PM

and tagged In the News

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Monday updateAlthough the government shutdown has now ended, several of last week’s scheduled economic reports were not released, and it is still undetermined when they will be made available. Similarly, this week’s data releases may also be affected.

Last week’s news

On Tuesday, the existing home sales report did worse than expected. It dropped from 5,330,000 in November to 4,990,000 in December, well below the expected 5,240,000. This drop suggests continued weakness in the housing market, and it is consistent with declining consumer confidence and housing affordability.

On Friday, the durable goods orders report was not released, but the numbers were expected to improve. For the headline index, which includes the very volatile aircraft sector, growth was expected to rise from 0.8 percent in November to 1.5 percent in December, with some significant upside risk based on increases in orders for planes. The core index, which is a much better economic indicator, was also expected to rise from a decline of 0.3 percent in November to a gain of 0.2 percent for December. This would indicate that business investment may be moderating but continues to expand.

The new home sales report was also scheduled on Friday but was not released due to the shutdown. No estimates were available as to expected results.

What to look forward to

On Tuesday, the Conference Board Consumer Confidence Index is expected to drop further after a surprise decline last month. It should go from 128.1 to 125, on rising concerns about the effects of the government shutdown. Even with the expected decline, confidence would remain at a healthy level and still be supportive of continued growth. But this drop could be a warning sign of weaker conditions ahead.

On Wednesday, the first estimate of economic growth for the fourth quarter of 2018 is due, although it may not be released as the government works at reopening. Growth in GDP is expected to drop from 3.4 percent in the third quarter to 2.5 percent in the fourth quarter, although there may be some upside risk on strong consumer spending.

Also on Wednesday, the meeting of the Federal Open Market Committee will conclude and be followed by a press conference. After the rate increase announced at the last meeting, markets are expecting rates to remain the same, and analysts will be looking to see whether the recent dovish tone on inflation has intensified. If so, markets could react positively. 

On Thursday, the personal income and spending report for December is due, although (again) it may not be released. Income growth is expected to rise from 0.2 percent in November to 0.5 percent in December on strong job growth. Spending growth is expected to tick down from 0.4 percent in November to 0.3 percent for December, which would still be healthy.

On Friday, the employment report is expected to show that job growth decreased from an extremely strong 312,000 in December to 163,000 for January. The unemployment rate is expected to tick down from 3.9 percent in December to 3.8 percent for January. The job growth number will not include the federal workers currently on furlough, as they will be counted as employed. But these workers will show up in the unemployment index, which may push it up a bit above expectations. Wage growth is expected to tick down a bit, from 0.4 percent for December to 0.3 percent for January, on a monthly basis. The increase on an annual basis in wage growth is expected to stay steady at 3.2 percent. If the numbers come in as expected, this would be another healthy report and signal continued economic growth.

Finally on Friday, the Institute for Supply Management Manufacturing index is expected to increase slightly. It should go from 54.1 to 54.3 for January, after a surprise drop to a two-year low in December. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. So, this index remains healthy. There is some downside risk here, on slowing global growth in general and the recent impact of the government shutdown. Uncertainty over trade policy remains a headwind as well. Even with a moderate pullback, however, this would still remain positive for the economy as a whole.

Have a great week!

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