11/25/2014
By Jennifer Coombs

Markets recieved a nice boost following an incredibly positive GDP revision for the third quarter – which was unexpectedly revised up instead of down. The US economy grew 3.9% in the third quarter versus the advance estimate of 3.5%. Growth still decelerated from the second quarter weather rebound of 4.6% annualized – now the growth seems far more realistic.

Additionally, according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI), home price appreciation slowed to a halt in September coming in at 0.0%. This was well below the 0.4% reading in August and 0.4% consensus expectations. Year over year, the rate softened to 4.3% in September from 4.7% the month before. During the month, five Census regions reported gains while three declined and one was flat. These are rather mixed signals for home prices, and the Case-Shiller reading showed much of the same.

Housing prices showed some strength in September, but it wasn’t enough to prevent the trend reversal in Case-Shiller’s 20-city index. For the month, the index increased by an adjusted 0.3%, which was actually the first gain since April. However, the year-over-year rate declined to +4.9%, making it the weakest month since October 2012. When you break the index down further the results are more positive, with 18 of the 20 cities showing monthly gains, which was last seen in March. The South, the largest region for home sales, showed particular strength in Atlanta, Charlotte and Miami and grew sales in the region by 1.2% in the month and with Dallas and Tampa not far behind. Unadjusted data showed no monthly change in September for the 20-city index compared to a 0.2% gain in August. However, the year-on-year rate, where monthly seasonality is neutralized, says virtually the same story as the adjusted data, coming in at 4.9% for a 7 tenths decline. This report specifically tracks existing homes, and though the results are mixed, the seasonally adjusted monthly gain is rather a significant positive. In summary, home prices are soft, but that is a plus for home buyers, just not a plus for those homeowners looking to sell.

Lastly, the Conference Board posted a rather bleak headline reading for November consumer sentiment, however the positive trends remain intact. The November reading came in at 88.7 which is down from a revised (but still a 7-year recovery best) of 94.1 in October (from 94.5). One of the less-obvious positives from the report was that there was little change in the component noting the difficulty of finding jobs for the unemployed, which was at 29.2% which is historically low for this reading and only slightly higher than October. This component in particular is heavily watched by economists, and points to steady and favorable employment conditions in the month of November. The jobs-hard-to-get reading is a subcomponent of the present situation component which was pulled down mostly by monthly declines in business conditions; it fell to 91.3 to indicate month-to-month weakness in consumer activity. This is unfortunately not positive news for retailers going into Black Friday. The expectations component (noted in the chart below) declined by a steep 6.8 points in November to 87.0, making this the lowest reading since June. This decline is indicative of dwindling confidence in future business conditions and some erosion on the overall employment outlook. However, a key strength can be found in its subcomponet for future income, where optimism remained steady. Lower gas prices led to downward expectations in inflation, which should get the Fed’s attention. All in all, the report is not as bad as it looks, and it’s quite hard to compare this month with the previous few spikes.

Jennifer Coombs
Wall Street Strategies

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