I know many of you are anxiously awaiting the Thanksgiving holiday (some of you may have hit the road already to visit family out of state), so I’m going to keep this post short and sweet. Even with the shortened trading week, we received some interesting updates on the state of the U.S. economy, and here are the highlights:
The Housing Recovery
In October, sales of existing homes jumped 2.1% to an annual rate of 4.79 million. This represents the second-highest level of the year and topped the 4.5 million consensus estimate. Meanwhile, September’s existing home sales data was downwardly revised from 4.75 million to 4.7 million. There is currently a 5.4 month-supply of existing homes on the market. The fact that this is the sixteenth consecutive month of home sales gains suggests that the housing recovery is well under way. The supply of existing homes is steadily going down—it has dropped 22% over the past year—while housing prices have risen over 11% from last year.
In October, housing starts also rose 3.6% to an 894,000 annual pace. This is the highest level in four years and trumped analyst estimates of 815,000 starts. The surge was driven by an 11.9% jump in starts on multi-family homes; single-family unit construction slipped 0.2%. However, building permits declined 2.7% to an 866,000 annual rate in October. This came below analysts’ estimates of 900,000 permits. Meanwhile, September’s building permits were revised slightly down from 894,000 to 890,000. October’s drop was spurred on by a 10.6% decline in permits for multi-family homes, which was slightly offset by a 2.2% gain in permits for single-family homes. Even accounting for the drop in permits, this was an encouraging report. Analysts expect the drop in building permits to reverse in the coming months because it was concentrated in the more volatile multi-family segment.
The Jobs Market
Last week, jobless claims plunged 41,000 to 410,000. The prior week’s claims were upwardly revised from 439,000 to 451,000, indicating that Hurricane Sandy caused a 90,000 surge in claims that week. The four-week moving average rose 9,500 to 396,250. It’s not ideal to have the moving average so close to the 400,000 cutoff (that suggests a contracting jobs market), but I believe that as the Northeast continues to recover from the storm, we’ll see claims moderate to the low levels seen before the storm.
In November, consumer sentiment remained crept up to a reading of 82.7. While this represents a five-year high for the index, economists were expecting a reading of 84. November’s strong reading was due to the current expectations index, which rose from 88.1 to 90.7. Meanwhile the index for future expectations dropped from 79 to 77.6. It’s encouraging to see that even in the face of the Fiscal Cliff, consumers seem to be more focused on the improving housing market and the holiday shopping season. We’ll receive the Conference Board’s consumer confidence index next week, and I’m hoping for similar results there.
The Big Picture
The Conference Board announced that its index of Leading Economic Indicators (LEI) rose 0.2% in October. This was better than economists’ consensus forecast of a 0.1% increase and is a significant improvement after September’s 0.5% drop. In October, the interest rate spread had the biggest impact on LEI to the upside while building permits dragged the most on the reading. Interestingly, only four of the 10 LEI components were positive, while two were neutral, so there are four key elements slowing down overall economic growth. Nonetheless, the fact that the overall LEI rose in October is indicative of continued “modest” economic growth.
I wish you and your loved ones a Happy Thanksgiving. As I have said, people are in a good mood during the holidays, whether it’s because of friends, family, food or football. Thanksgiving certainly brings all of those together, and I hope you enjoy your holiday.