Housing Rebounded Yet Business Activity Chilled in December: What We Learned During the Week of January 18-22

A series of reports released last week finds November’s drop in housing sales was an aberration but also that overall business activity had remained feeble in December. Here are the 5 things we learned from U.S. economic data released during the week ending January 22.

#1Sales of previously owned homes bounced back in December as delayed transactions from the previous month were able to close. The National Association of Realtors estimates existing home sales surged 14.7% during the month to a seasonally adjusted annualized rate (SAAR) of 5.46 million units. You may remember November’s sharp 10.5% drop in sales was the product of the launch of the “Know Before You Owe” paperwork requirements that led to longer closing times. Sales were 7.7% above year ago levels and grew in all 4 Census regions on both a month-to-month and year-to-year basis. Meanwhile, inventories of unsold homes sharply contracted to 1.79 million units (-12.3% vs. November 2015 and -3.8% vs. December 2014). This translated to a mere 3.9 month supply. As a result, the median sales price of $224,100 was 7.6% above a year ago levels. The 5.26 million units sold for all of 2015 represented the best year for sales of previously owned homes since 2006. NAR warned that the housing market will struggle to replicate the same rate of growth in 2016 because of constrained inventories, “tepid economic expansion, rising mortgage rates and decreasing demand for buying in oil-producing metro areas.”

#2Housing starts slipped but remained near post-recession highs in December. The Census Bureau estimates housing starts slowed 2.5% during the month to a seasonally adjusted annualized rate (SAAR) of 1.149 million units. Even with the decline, this was 14.4% above year ago levels. Starts of single-family units declined 3.3% while those for multi-family properties slipped 1.0%. For all of 2015, there were 1.111 million homes started, up 12.0% from 2014’s count. Also slowing during the month were the number of issued housing permits, declining 3.9% in December to a SAAR of 1.232 million units (+14.4% vs. December 2014). Permits for single-family units grew 1.8% during the month while those for multi-family units dropped 11.4%. The SAAR of housing completions grew 5.6% during the month to 1.013 million units. For all of 2015, there were 965,000 homes completed, a 9.3% increase from the 2014 count.

#3Consumer prices slipped in December as prices for energy, food and core goods all dropped. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) declined 0.1% during the month and was up a mere 0.7% for all of 2015. Energy dropped for the 4th time in 5 months with a 2.4% decline (-12.6% vs. December 2014) with the prices for every major energy category decreasing; including, gasoline (-3.9%), fuel oil (-7.8%), utility delivery natural gas (-2.3%) and electricity (-0.4%). Food CPI slipped 0.2%, which included the impact of sharp declines in prices for meats/poultry/fish/eggs. Net of both energy and food, core CPI increased 0.1%, split between a 0.2% price bump for core services (including higher prices for transportation services, shelter and medical care services) and a 0.1% drop in prices for core goods. The former was pulled down by price drops for apparel (-0.2%), new vehicles (-0.1%) and medical care commodities (-0.1%). Core CPI has increased 2.1% over the past year, the largest year-to-year gain in core prices in 3.5 years.

#4A monthly measure of economic activity finds the U.S. economy continued to grow at a slower than normal rate during December. The Chicago Fed National Activity Index (CFNAI), a measure of 85 economic indicators, improved by 14-basis points to -0.22. The Federal Reserve Bank of Chicago’s measure has been negative for 5 consecutive months but has remained above -0.70, meaning that the U.S. economy has been growing at a below average pace since August. The 3-month moving average for the CFNAI slipped 5-basis 012216graphicpoints to -0.24, the 3rd straight month in which the moving average has been negative and its lowest reading since last March. Improving during December were index components associated with production/income and sales/orders/inventories, while those for consumption/housing dipped slightly and those for unemployment were unchanged during the month. 35 of 85 tracked economic measures made a positive contribution to December’s CFNAI reading.

#5A forward looking measure of economic activity failed to increase for the 4th time in 6 months. The Leading Economic Index from the Conference Board slipped 2/10ths of a point during December to a seasonally adjusted reading of 123.7 (2010 = 100). Only 4 of 10 index components made a positive contribution to the leading index; including, the interest rate spread, non-aircraft capital goods orders and new factory orders for consumer goods. The coincident index inched up 1/10th of a point to 113.0 with 3 of 4 index components improving during the month: nonagricultural payrolls, personal income net of transfer payments and manufacturing/trade sales. The lagging index added 2/10ths of a point to 119.9 with 4 of 7 components increasing during the month. The press release notes that a decline in housing permits and “weak” factory order pulled down the leading index. It also said that it was “too early” to view the “decline” in the growth rate in the leading index as a “substantial rise in the risk of a recession.”

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending January 16, 2016, seasonally adjusted): 293,000 (+10,000 vs. previous week; -8,000 vs. same week a year earlier). 4-week moving average: 285,000 (-4.4% vs. same week a year earlier).
Treasury International Capital Flows (November 2015, Net Domestic Purchases by Foreign Investors): +$41.0 billion (vs. -$50.2 billion in October 2015 and +$59.2 billion in November 2014).
Gross Domestic Product by Industry (Third quarter 2015: Leading Industries Contribution to GDP Growth): Retail Trade, Education/Health Care and Agriculture/Forestry.

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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