Economic Activity Grew, Sentiment Did Not: December 24 – 28

Economic activity was above average in November, but consumers were less cheery about the future as 2018 ended. Here are the five things we learned from U.S. economic data released during the week ending December 28.

Note that the partial shutdown of the federal government has and will delay the release of certain economic data reports.

#1Economic activity picked up in November. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic measures, rose from showing average economic growth (with a reading of 0.00) in October to indicating above-average growth with a reading of +0.22 in November. Forty-eight of 85 economic measures made a positive contribution to the CFNAI while the other 37 made negative contributions. Among the four major categories of economic indicators, those associated with production and sales/orders/production had greater positive contributions in November, with the former up 17-basis points to a +0.08 contribution and the latter up 11-basis points to +0.09. Making smaller contributions were economic indicators associated with employment (down five basis points to +0.10) and consumption/housing (off a basis point to a negative contribution of -0.05). The CFNAI’s three-month moving average lost 11-basis points during the month to a reading of +0.12. This reading is consistent with above average economic growth.

#2Consumer confidence mellowed in December. The Conference Board’s Consumer Confidence Index shed 8.3 points during the month to fall to a seasonally adjusted reading of 128.1 (1986=100). Most of the decline came from consumers’ lowered enthusiasm for the future as the expectations index lost 13.2 points to 99.1. The drop in the present conditions index was far more modest as it lost 1.1 points to 171.6. The former was pulled down by fewer survey respondents anticipating business conditions will improve over the next six months (18.3 percent of respondents) and there to be more jobs available in the near future (16.6 percent). The press release noted that overall sentiment was “ending 2018 on a strong note” but also stated that the lowered expectations reflected “an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

#3Home purchase contract signing activity slipped again. The Pending Home Sales Index (PHSI) from the National Association of Realtors lost 7/10ths in November to a seasonally adjusted 101.4 (2001=100), its lowest mark since 2014. While the measure of contracts signed to purchase a previously owned home declined on a national basis, it managed to increase in both the Northeast (up 2.5 points to 95.1) and West (up 2.4 points to 87.2). The index fell both the South (down 3.2 points to 115.7) and Midwest (off 2.3 points to 98.1). The PHSI has slumped 7.7 percent over the past year (the 11th consecutive month with year-to-year declines), with negative 12-month comparables in all four Census regions. The press release laid the blame for the slower activity on lower home affordability (home prices and interest rates) and warned the partial government shutdown could harm the housing market (due to the shutdown’s starving off the availability of flood insurance).

#4One measure of home prices signals a cooling. The purchase-only House Price Index (HPI) from the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, grew 0.3 percent on a seasonally adjusted basis during October. While this was larger than September’s 0.2 percent gain, it was under the 0.4 percent increase experienced each month from April through July. The HPI, which tracks the prices of previously owned homes purchased with a conforming mortgage, grew in seven of nine tracked Census regions, led by the Pacific (+1.4 percent), West North Central (+1.1 percent), and East North Central (+0.7 percent). Home prices fell in both the South Atlantic (-0.6 percent) and Middle Atlantic (-0.2 percent). The HPI has risen 5.7 percent over the past year, the smallest 12-month comparable since the Spring of 2016.

#5…As does another. The 20-city Case-Shiller Home Price Index increased 0.4 percent on a seasonally adjusted basis in October after having risen 0.7 percent during the prior month. Home prices have risen 5.0 percent over the past year, down from a +5.2 percent 12-month comparable reported a month earlier. The index rose in 18 of the 20 tracked metropolitan areas, led by a 0.8 percent jump in Las Vegas and 0.7 percent increases in Atlanta, Boston, New York, and Phoenix. Home prices dropped in San Francisco (-0.6 percent) and Seattle (-0.3 percent). All 20-tracked metro areas enjoyed positive 12-month comparables, with the largest year-to-year percentage price gains in Las Vegas (+12.8 percent), San Francisco (+7.9 percent), Phoenix (+7.7 percent), and Seattle (+7.3 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 22, 2018, First-Time Claims, seasonally adjusted): 216,000 (+2,000 vs. previous week; +26,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-8.0% vs. the same week a year earlier).

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

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