Top Three Economic Reports of the Week

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…

Fourth-Quarter GDP (Advance Estimate)

If you recall, the Commerce Department revises each quarter’s Gross Domestic Product (GDP) a total of four times: advance, preliminary, final and each July when annual benchmark revisions are announced. Because GDP is the broadest measure of the nation’s economic activity, these revisions are the federal government’s effort to paint the most accurate picture of domestic economic growth.

This morning’s advance estimate for fourth-quarter GDP revealed that the U.S. economy grew at an annual rate of 2.6%, down from the 3.2% rate in the third quarter. The latest figure falls short of economists’ estimates for a 2.9% reading, but is still positive news. And there are several details within the report to cheer about. One example is consumer spending, which makes up more than two-thirds of U.S. economic activity. Consumer spending rose at a 3.8% annual rate in the fourth quarter—the fastest pace in three years—and tops the 2.2% rate of growth recorded in the third quarter. For full-year 2017, the U.S. economy grew at an annual rate of 2.3%, showing good momentum from the 1.5% reading in 2016.

Overall, while fourth-quarter activity softened, this was still a solid report. Now, with all 50 states receiving snow and record cold temperatures over the past couple of months, I will not be surprised if we see a slowdown in GDP growth once first-quarter estimates come out.

Looking further out, economists are currently expecting 2018 GDP to reach 3%, thanks to the weak dollar, higher oil prices and an improving global economy.

New Home Sales

On Thursday, the Commerce Department announced that December’s New Home Sales fell 9.3% from November, the steepest drop since November 2016. December sales of new single-family homes dropped to an annualized rate of 625,000, from the downwardly revised November rate of 689,000. The report was worse than what economists surveyed by Reuters were expecting, which was a softer 7.9% decrease to a pace of 679,000 units.

The silver lining here is that extreme weather conditions likely put a temporary damper on December’s sales. Additionally, when compared to December 2016, new home sales are actually 14.1% higher. A more robust labor market has heightened demand for homes. But with inventory not being able to meet demand, prices have risen and some first-time homebuyers have been priced out. Median sales prices climbed 2.6% year-over-year in December to $335,400. Now, because there have been more multi-family housing starts, this is only 2.5% higher than a year ago.

Interestingly, this weaker-than-expected report might be good news for the stock market. Lackluster housing data is just another reason for the Federal Reserve to postpone any interest rate hike in their March meeting, since higher interest rates will likely continue to hurt existing home sales.

Existing Home Sales

According to Wednesday’s report from the National Association of Realtors (NAR), December’s existing home sales slipped 3.6% month-over-month. However, compared to the year ago period, December’s existing home sales—which include single-family homes, townhomes, condominiums and co-ops—increased 1.1% to 5.51 million units, which is the strongest year-over-year growth seen in 11 years.

Economists were looking for home sales to decrease more modestly by 2.2% percent to a 5.70 million-unit rate in December, following November’s downwardly revised 5.78 million units.

Median existing home prices for all housing types rose 5.8% year-over-year to $246,800, up from $233,300 in December 2016. This is the 70th-straight month of year-over-year price increases.

The number of existing homes for sale fell 10.3% year-over-year to 1.48 million units, the lowest since 1999. However, with wages on the rise and corporate tax reform spurring economic growth, market observers believe that 2018 will be the turning point for increased sales to first-time homebuyers.

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,

Louis Navellier

Louis Navellier

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