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…
On Friday, the University of Michigan’s Consumer Sentiment Index showed that U.S. consumer sentiment fell 1.6% to 94.4 in January, down from a 95.9 reading in December. Results fell short of economists’ estimates for 97, marking the third month of a move away from October’s record high of 100.7, and hitting a six-month low.
Consumers are viewing economic conditions less favorably, with the current conditions index decreasing 4%, from 113.8 in December to 109.2 in January. Some of this dampened sentiment appears tied to uncertainty about the effects of corporate tax reform.
Tax reform was spontaneously mentioned by 34% of all respondents. 70% of these respondents mentioned tax reform positively, while 18% indicated that tax reform impacts will be negative. It will be interesting to see the index over the next few months as U.S. corporations begin to realize and share gains from corporate tax reform in the first quarter of 2018.
Housing Starts and Building Permits
Thursday’s housing starts report brought weaker-than-expected numbers. The Commerce Department reported that housing starts tumbled to an annual pace of 1.192 million housing units in December, 8.2% lower than the revised November estimate of 1.299 million units. December’s pace came in below economists’ forecasts, which looked for housing starts to fall to a pace of 1.275 million units. Building permits for single-family homebuilding slipped 0.1% to a rate of 1.302 million units, down from November’s revised rate of 1.303 million units.
The good news is that permits are outpacing starts, which suggests that homebuilding will bounce back in the coming months. Plus, housing completions increased 2.2% from November to a seasonally adjusted annual rate of 1.177 million. I would be remiss if I didn’t note that housing completions are up 7.4% year-over-year.
All-in-all, while this was a mixed report, what we have to remember is that this winter’s record cold temperatures likely played a role and is a short-term challenge. As the economy continues to improve and unemployment decreases, demand for newly built homes is expected to rebound.
On Monday, the Federal Reserve reported that U.S. industrial production rose 0.9% in December, surpassing economists’ estimates for a 0.4% increase. This is a nice rebound from the downwardly revised 0.1% decline in industrial production seen in November. Frigid temperatures across the east coast likely drove higher demand for utilities, which jumped 5.6% last month. Mining production also contributed to the surge in industrial production, climbing 1.6% in December. Capacity utilization—which gauges how much slack may be in the economy—rose 77.9% in December, up slightly from 77.2% in November. Overall, this week’s report is all the more indication that the U.S. economy continues to strengthen. I would not be surprised if we continue to see industrial activity firm up this year.
That’s all I have for you this week. I’ll be in touch again next week with the latest ratings out of Portfolio Grader.
Have a great weekend,