>> Market Update INFO THAT HITS US WHERE WE LIVE Last Thursday it was good to see that Housing Starts picked up for November, rising 3.9% for the month to an annual rate of 555,000 units. This beat expectations and was especially gratifying because all the gain came from a 6.9% increase in single-family starts. These have now been up three out of the last four months.
Multi-family starts were down for the fourth month in a row, but these are very volatile on a monthly basis. In fact, the 12-month moving average for multi-family starts is still trending higher, up 5.9% compared to a year ago. The demand for multi-unit residences should continue to grow, which is why some observers foresee a large rebound in multi-unit construction in the new few months. Although there are still excess housing inventories, they are falling quickly and experts expect them to drop further, even with a home building recovery. >> Review of Last WeekTHREE IN A ROW... Investors sent stocks higher for the third straight week on Wall Street. The markets weren't exactly on fire, as volumes were low, which is typical for this time of year, and investors remain guardedly optimistic, which has been their attitude since last month's elections. As happens so often, the week's festivities were driven by the economic headlines and there certainly were plenty to ponder.
The consumer appears to be showing up for the holidays, as retail sales went up 0.8% in November, up 1.2% excluding autos. Including revisions to September and October numbers, overall sales were up 1.5% for the month. Retail is now UP 7.7% over a year ago, and sales are up at a 12% annual rate for the past five months! On the worrisome side, the November Producer Price Index (PPI) showed wholesale inflation up 0.8%, although the Consumer Price Index (CPI) rose a benign 0.1%. Consumer prices are up 1.1% over a year ago, which is good, but wholesale prices are up 3.5% for the year, which isn't so good if you want to keep inflation in check and interest rates down.
The jobs recovery is key to the housing rebound, so it was good to see new unemployment claims falling again last week, to 420,000. This beat expectations and was the second lowest number this year for weekly claims, which have now fallen three times in the last four weeks. The Philadelphia Fed index showed manufacturing continues to grow in that region, as it was up nicely for December. Likewise, the Empire State index showed New York manufacturing coming back strong in December after last month's dip. November Industrial Production rose above expectations and capacity utilization showed factories at their highest volume levels since October 2008.
For the week, the Dow was UP 0.7%, to 11491.91; the S&P 500 was UP 0.3%, to 1243.91; and the Nasdaq was UP 0.2%, to 2642.97.
With investors feeling more upbeat about the economy, money flowed into stocks and out of the bonds that fund most mortgage loans. The FNMA 30-year 4.0% bond we watch ended down 78 basis points for the week, closing at $98.22. This inched mortgage rates higher once again. Freddie Mac's weekly survey of conforming mortgages had the average 30-year fixed-rate mortgage rate up for the fifth week in a row. Rates are still historically low, but people looking to purchase or refinance should be aware that the low-rate party may soon be over. >> This Week’s ForecastHOUSING, INFLATION AND THE OVERALL ECONOMY... This week we get to see how the economy is coming along in some key areas. We track the housing recovery with Wednesday's Existing Home Sales and Thursday's New Home Sales, both expected to be up a bit for November. Continuing the theme of a steady if slow recovery, the third estimate of GDP should show the overall economy growing at a 2.7% annual rate, up from the prior 2.5% estimate. Again, a slower rate of growth than economists would like to see, but growth nonetheless.
Thursday brings more inflation readings, with both Personal Spending and Core PCE Prices expected to remain under control. The final December reading on University of Michigan Consumer Sentiment may be up a small amount, while November Durable Goods Orders may be down a tad. The markets will be closed Friday.
Happy Holidays to you and yours during this joyous season! >> The Week’s Economic Indicator CalendarWeaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of December 20 – December 24 Date | Time (ET) | Release | For | Consensus | Prior | Impact | W
Dec 22 | 08:30 | GDP - Third Estimate | Q3 | 2.7% | 2.5% | Moderate | Tu
Dec 14 | 08:30 | GDP Chain Deflator - Third Estimate | Q3 | 2.3% | 2.3% | Moderate | W
Dec 22 | 10:00 | Existing Home Sales | Nov | 4.65M | 4.43M | Moderate | W
Dec 22 | 10:30 | Crude Inventories | 12/18 | NA | -9.85M | Moderate | Th
Dec 23 | 08:30 | Initial Unemployment Claims | 12/18 | 424K | 420K | Moderate | Th
Dec 23 | 08:30 | Continuing Unemployment Claims | 12/5 | 4.075M | 4.135M | Moderate | Th
Dec 23 | 08:30 | Personal Income | Nov | 0.2% | 0.5% | Moderate | Th
Dec 23 | 08:30 | Personal Spending | Nov | 0.5% | 0.4% | HIGH | Th
Dec 23 | 08:30 | PCE Prices - Core | Nov | 0.1% | 0.0% | HIGH | Th
Dec 23 | 08:30 | Durable Goods Orders | Nov | -1.0% | -3.3% | Moderate | Th
Dec 23 | 09:55 | U. of Michigan Consumer Sentiment Index - Final | Dec | 75.0 | 74.2 | Moderate | Th
Dec 23 | 10:00 | New Home Sales | Nov | 303K | 283K | Moderate |
>> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months The policy statement from last week's FOMC meeting indicated the Fed is not yet convinced the economy is on solid ground. Analysts therefore expect the Fed Funds Rate to stay at its super low level for an "extended period." Inflation, or a stronger economic recovery, could of course start the rate back up. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: | Consensus | Jan 26 | 0%–0.25% | Mar 15 | 0%–0.25% | Apr 27 | 0%–0.25% |
Probability of change from current policy:
After FOMC meeting on: | Consensus | Jan 26 | <1% | Mar 15 | <1% | Apr 27 | 1% |
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