---
title: "Monday Update (on Tuesday): Housing Sector Continues to Shine"
description: In his Monday Update, Commonwealth’s Sam Millette reviews a bevy of important data releases, including strong results for retail sales and housing.
image: https://blog.commonwealth.com/hubfs/Brad_Images_IMO_Blog/2017/MarketOutlook_1.jpg
---

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# [Monday Update (on Tuesday): Housing Sector Continues to Shine](https://blog.commonwealth.com/independent-market-observer/monday-update-on-tuesday-housing-sector-continues-to-shine)

Posted by [Sam Millette](https://blog.commonwealth.com/independent-market-observer/author/sam-millette) 

This entry was posted on  Jan 21, 2020, 12:12:51 PM

 and tagged [In the News](https://blog.commonwealth.com/independent-market-observer/topic/in-the-news) 

[Leave a comment](https://blog.commonwealth.com/independent-market-observer/monday-update-on-tuesday-housing-sector-continues-to-shine#comments-listing)

![In his Monday Update, Commonwealth’s Sam Millette reviews a bevy of important data releases, including strong results for retail sales and housing. ](https://blog.commonwealth.com/hs-fs/hubfs/Brad_Images_IMO_Blog/2017/MarketOutlook_1.jpg?width=300&name=MarketOutlook_1.jpg)Last week was full of economic updates, with more than a half dozen important data releases. The results largely beat expectations, revealing muted inflation pressure and strong results for retail sales and the housing sector. This week will be very quiet, with Wednesday’s report on existing home sales the only scheduled release.

##### Last week’s news

We kicked off the week with Tuesday’s release of the December **Consumer Price Index**. Consumer prices rose by 0.2 percent, against expectations for 0.3 percent growth. This result put year-over-year consumer inflation at 2.3 percent, below the anticipated 2.4 percent growth but in line with November’s result. Core inflation, which strips out the impact of volatile food and energy prices, also came in under the forecast, showing 0.1 percent growth compared with the predicted 0.2 percent.

On Wednesday, December’s **Producer Price Index** was released. Price gains were also muted, with headline producer inflation increasing by 0.1 percent against expectations for 0.2 percent growth. On a year-over-year basis, producer inflation grew by 1.3 percent, which was in line with predictions. The moderate increases in both consumer and producer inflation during December leave inflation well within the Fed’s 2 percent target range. The lack of rising inflationary pressure after three interest rate cuts in 2019 indicates that the Fed may view last year’s cuts as appropriate. Short-term changes to monetary policy are unlikely unless the economy gets a major external shock.   

On Thursday, we got December’s **retail sales** report. Sales grew by 0.3 percent during the month, in line with expectations. This result matches November’s upwardly revised 0.3 percent gain. It brought year-over-year growth up to 5.8 percent, the highest year-over-year growth rate since August 2018. The gains were widespread, with all major categories seeing increases except for car sales, which can be highly volatile on a month-to-month basis. Excluding autos, sales grew by 0.7 percent, delivering the best result in five months. The acceleration in retail sales is a positive development for GDP growth for the fourth quarter, as consumer spending has been the major driver of economic growth over the past year.

Thursday also saw the release of the **National Association of Home Builders Housing Market Index**. This gauge of home builder confidence beat the forecast, falling from 76 in December to 75 in January, against expectations for a drop to 74. November’s result was a 20-year high for the index, so this slight drop is nothing to worry about. In fact, December’s result marks the highest back-to-back reading for the index since 1999. Low mortgage rates, high consumer confidence, and strong personal balance sheets continue to drive prospective buyers into the market. The subindex that tracks prospective buyer traffic reflected this increased demand, rising to its highest level since 1998. Home builders have certainly noticed this pickup in demand and have been ramping up construction of new homes accordingly.

Speaking of construction, Friday saw the release of December’s **building permits** and **housing starts** reports. Permits declined by slightly more than expected, but the real story was housing starts. This reading increased by 16.9 percent instead of the anticipated 1.1 percent, bringing the pace of new home sales to its highest level since December 2006. In addition, builders have shown themselves very willing to meet rising buyer demand by constructing more houses. On a year-over-year basis, housing starts grew by more than 40 percent, marking a six-year high. The strong rebound in the housing market last year was one of the major bright spots for the economy. Continuing this trend, December’s results for home builder confidence and housing starts are a great sign for 2020, especially given the lack of supply for homes in certain markets.

Friday also saw the release of December’s **industrial production** report, which yielded mixed results. Production fell by 0.3 percent, but most of this decline was due to a drop in utilities output caused by warm weather throughout the month. In fact, manufacturing output rose by 0.2 percent, a better result than the expected 0.1 percent decline. This gain resulted in the second straight month of manufacturing growth, following the declines in September and October largely caused by the General Motors strike. Although December’s results beat predictions, manufacturer confidence remains very low. This area of the economy will bear watching going forward. Boeing’s decision to suspend production of its troubled 737 Max in January is also expected to become a headwind for production growth.

Finally, we finished the week with Friday’s release of the **University of Michigan consumer confidence survey** for January. Consumer sentiment declined slightly, from 99.3 in December to 99.1 in January, against expectations to remain steady at 99.3. Despite this slight decline, consumer sentiment remains well above the recent three-year low of 89.8 seen last August. So, this result gives us no immediate cause for concern. In fact, given the uncertainty caused by the month’s escalating tensions between the U.S. and Iran, the resiliency of the index is impressive. Historically, policy uncertainty that could affect national security has strained consumer sentiment, but this time consumers appear to have mostly shrugged off the news. So, while a decline to start the year is disappointing, sentiment appears healthy for the time being. Given the recovery we saw in the fourth quarter, confidence could be poised to grow if political uncertainty fades.

##### What to look forward to

Wednesday will see the release of December’s **existing home sales** report. Sales are expected to increase by 1.5 percent during the month. November’s report showed a 1.7 percent decline, which was primarily attributed to lack of supply, as housing stock remains very low on average. If December’s estimates prove accurate, they would mark the sixth straight month with year-over-year growth in existing home sales. This trend upwards follows a prolonged slowdown throughout 2018 and the early part of 2019. As we saw with the home builder figures released last week, housing has been on a hot streak. A return to monthly growth for existing home sales would help further solidify the strength of this important area of the economy.

That’s it for this week—thanks for reading!

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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.

The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities.

The Russell 2000 is a market-capitalization weighted index, with dividends reinvested, that consists of the 2,000 smallest companies within the Russell 3000 Index. It is often used to track the performance of U.S. small market capitalization stocks.

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.

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