Which Pockets of the Economy are Heating Up?

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:

Consumer Confidence Declines

In February, the Conference Board’s consumer confidence index declined to a reading of 92.2, down from January’s revised reading of 97.8. This fell short of economists’ estimates for a 97.3 reading. The consumer expectations sub-index fell to 78.9, while the current conditions sub-index also slipped to at 112.1.This was the lowest consumer confidence reading since July 2015, and signals that consumers’ outlook on the U.S. economy and job market has weakened. This was a big surprise and means that we will need to keep a closer eye on retail sales moving forward.

Existing Home Sales Increase

The National Association of Realtors reported that the pace of existing home sales increased 0.4% to a 5.47 million-unit annual rate in January. This topped economists’ forecast for sales to decline by 2.9% to a 5.32 million-unit annual pace. The sales pace for December was revised slightly lower to 5.45 million units, down from 5.46 million units. Sales of existing homes have now reached a six-month high, which is a positive sign that the U.S. housing market is continuing to improve.

New Home Sales Fall

The Commerce Department reported that new home sales declined 9.2% in January to an annual rate of 494,000 units, which missed economists’ estimates for new home sales to slip to an annual rate of 520,000 units. December’s sales pace remained unchanged at 544,000 units. At the current sales pace, it would take 5.8 months to deplete supply. Much of the decline in new home sales last month can be attributed to 32.1% drop in sales in the West. Home sales in the West hit their lowest level since July 2014.

Initial Claims for Unemployment Increase

For the week ending February 20, initial claims for unemployment increased by 10,000 to 272,000, which missed economists’ estimates for claims to rise to 270,000. The previous week’s jobless claims remained unchanged. And the four-week moving average slipped to 272,000. Despite global economic fears, the U.S. job market continues to slowly improve, as jobless claims have now remained below the 300,000 threshold for 51-straight weeks.

Durable Goods Orders Surge

Orders for durable goods surged 4.9% in January after falling 4.6% in December. This topped economists’ estimates for durable goods orders to increase 3.5% last month. Capital goods orders, which exclude aircraft and defense, increased 3.9% in January. This was a strong report and marks the largest gain in durable goods orders in 10 months. The jumped was supported mainly by strong orders for airplanes (up 11.5%) and automobiles (up 3%), but orders for all industrial goods increased last month, which is a positive sign. The beleaguered business sector has definitely come alive, and that bodes well for overall GDP growth.

Fourth-Quarter GDP Expands (Second Estimate)

The Commerce Department reported this morning that GDP expanded at a 1% annual rate in the fourth quarter, slightly higher than the previously reported estimate of 0.7%. This also topped economists’ estimates for fourth-quarter GDP to be revised down to a 0.4% annual rate. While consumer spending was revised down to a 2% annual rate and exports declined 2.7%, the increase in inventories helped support the higher fourth-quarter GDP reading. Still, overall GDP growth is expected to remain painfully slow in 2016.

Personal Income Increases

The Commerce Department revealed that personal income and spending both increased 0.5% in January, above economists’ estimates for a 0.3% rise. Wages and salaries advanced 0.6% last month. The Federal Reserve will likely cheer the increase in consumer spending last month, giving them more fodder for further interest rate hikes this year. However, I still don’t expect interest rates to be raise in March, as inflation is still relatively non-existent.

University of Michigan Consumer Sentiment Index Tops Estimates (Final)

The University of Michigan’s Consumer Sentiment Index reported a final reading of 91.7 in February, which topped economists’ estimates for a reading of 91. The current conditions index increased to 106.8, up from 106.4 last month. And the future expectations index slid slightly to 81.9, down from 82.7 in January. The index is now just slightly below its cyclical peak of 98.1 from January 2015, which signals that consumer spending is still alive and well.

Have a great weekend,

Louis Navellier

Louis Navellier

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