It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week–I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:
#1: The Economy Decelerated in Q4
The Commerce Department reported this morning that the U.S. economy grew at a 2.2% annual pace in the fourth quarter. This is lower than the initial estimate of 2.6% growth. Nonetheless, this was still a faster pace than the 2.0% rate predicted by economists. The widening trade gap and tighter business inventories weighed on overall economic growth. At the same time, consumer spending grew 4.2% last quarter, the fastest pace since early 2006. While the economy took a breather in the fourth quarter, economists are expecting more robust growth in the first quarter. One reason is that after keeping a tight lease on their inventories, businesses will need to restock their shelves in the coming months. Meanwhile, persistently low oil prices has helped to boost consumer spending, and I don’t see this trend reversing any time soon.
#2: Consumers Are Letting the Media Get to Them
In February, the Conference Board’s consumer confidence index dipped to a 96.4 reading. Meanwhile, the index’s January reading was revised higher from 102.9 to 203.8. Breaking it down, the current conditions index fell from a revised 113.9 in January to 110.2 in February. Meanwhile, the six-month expectations index retreated from 97.0 to 87.2, as fewer of the surveyed consumers expected conditions to improve. I wouldn’t read too much into this; consumer confidence is still at prerecession levels. Some economists attribute the drop in consumer confidence to media sensationalism, because consumers are suddenly worrying about the economy and the availability of jobs. There is no doubt that the news media, especially the financial news media, likes to dwell on negative news and ignore positive news.
#3: Existing Home Sales Are Taking a Breather…
The National Association of Realtors announced that sales of existing homes declined 4.9% to a 4.82 million annual pace in January. This was below economists’ estimates of a 4.95 million pace. Meanwhile, December existing home sales were revised higher from 5.04 million to 5.07 million. The inventory of existing homes remains tight. At the current sales pace, it would take 4.7 months to sell all of the homes currently on the market, a 2.1% drop from a year ago. The bad news is that this is the slowest sales pace since May. The good news is that sales are still 3.2% higher than they were a year ago. For the most part, the pullback in home sales was expected. January tends to be a volatile month for the housing market, and the recent bout of bad winter weather depressed sales in the Northeast.
#4: …While New Home Sales Are Climbing
In January, sales of new homes inched down 0.2% to a seasonally adjusted annual rate of 481,000. This surpassed economists’ expectations of a 450,000 annual rate. December new home sales were revised slightly from 481,000 to 482,000. At the current sales pace, there are enough homes on the market for 5.4 months. New home sales are growing at a faster pace than existing home sales, having risen 5.3% over the past year. And December’s revised sales pace represents the highest level of growth since June 2008. The fact that new home sales kept going strong despite the unseasonably cold winter is a great sign.
# 5: Jobless Claims Experience A Short-Term Surge
For the week ending February 21, initial claims for unemployment unexpectedly jumped to a seasonally adjusted rate of 313,000, 31,000 higher than the prior week. Economists forecasted that claims would rise to a 290,000 annual rate, so this was a larger jump than expected. Meanwhile the four-week moving average increased by 11,500 from the previous week’s revised average. While the initial claims are up more than expected, the overall trend is on par with an improving labor market.
#6: Inflation May Be Brewing At the Consumer Level
In January, the Consumer Price Index fell 0.7%, in line with economists’ estimates. Energy prices fell 9.7%, with gasoline prices plunged 18.7%. Excluding food and energy prices, the core CPI increased 0.2% in January, above economists’ estimates of 0.0%. Meanwhile, the December CPI was revised to a 0.3% drop, less than the 0.4% decline previously reported. This is the third consecutive month that headline consumer prices have fallen. In the past 12 months, the CPI has dipped 0.1%. However, much of this stems from oil prices, which are at a multi-year low. Core consumer prices have actually risen 1.6% in the past year, suggesting that inflation may be starting to brew.
#7: Durable Goods Orders Surged In January
In January, orders for durable goods surged 2.8%. Economists were expecting a 1.0% decline in orders, so this was much stronger than expected. A 129% surge in commercial aircraft orders offset a 2.9% decline in the auto industry. Excluding both aircraft and autos, durable goods orders rose 0.3% in January, also above the 0.1% consensus estimate. This represents the largest month gain in six months, and was a refreshing change from the lackluster December report. Especially encouraging was that business orders rose 0.6% in January after four straight monthly declines. However, core orders have declined at a 7% annual rate in the past four months, which signals a very cautious business sector. Overall, the January durable goods report was encouraging, but there needs to be similar gains in the upcoming months.
#8: February Consumer Confidence Slipped From January
The University of Michigan’s Consumer Sentiment Index finished the month of February at a 95.4 reading. Economists were expecting a 93.6 reading, so this was stronger than expected. However, this is a drop from last month’s rating of 98.1, an 11-year high, and harsh winter conditions are partially to blame. Despite the month-to-month decline, by this measure U.S. consumer sentiment is now at its highest level in eight years. It appears that this drop is mainly due to the harsh seasonal weather experienced in the Northeast and Midwest. The report stated that Southern states were more optimistic. So, consumer confidence should pick back up in the spring.
That’s all I have for you this week. I’ll be in touch with the latest Portfolio Grader changes on Monday.
Have a great weekend,