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Econ Wrap-Up: Existing Home Sales, Leading Economic Indicators, and More

1/23/2015
By Jennifer Coombs

As expected, existing home sales popped in December 2014 by 2.4% to an annual sales rate of 5.04 million units, versus a slightly revised 6.3% decline in November to 4.92 million units. This gain underscores the housing report from Wednesday, as sales were led by single-family homes which increased by 3.5% to a rate of 4.47 million units. We note that the gain for single-family homes is a very important signal of strength for first-time homebuyers. The pop in sales also drew down the inventory of homes on the market to 1.85 million from 2.08 million, which ultimately lowered the supply to 4.4 months from 5.1 months. A lower supply of homes on the market could actually spell trouble in January’s report. Another positive point, which was noted in yesterday’s FHFA report, was a 1.1% gain in the median home price to $209,500. Year-over-year, the median price has gained 6.0%, which is also a big positive for the housing sector. Overall, this is a solid report for the housing sector, although seasonal factors do have a tendency to affect the seasonal reading of winter reports.

 

Next, the Conference Board released its monthly index of leading economic indicators (LEI). LEI rose by a solid 0.5% in December which is a somewhat shallow gain provided the Fed’s zero interest-rate policy. Otherwise, December’s strength was due to a decline in unemployment claims, but was hindered by a decline in building permits.

Markit’s flash reading for the manufacturing purchasing managers’ index (PMI) indicates some relatively steady and moderate growth. January’s PMI came in at an initial reading of 53.7 which is down from the 53.8 final reading in December. The index has been slowing to the softest readings in the past year due to declining oil and gas activity and weakening export reports. However, lower oil means that input cost pressure declined in the month for the first time in 2.5 years. This supports readings from the Empire State and Philly Fed, which show that manufacturing activity in January has been soft.

Lastly, the Chicago Fed’s National Activity Index (NAI) showed that December was a weak month for the economy, as the index came in at a -0.05 compared to a +0.92 in November. All four of the index’s components declined relative to November, with both the production and consumption & housing components at outright contractionary levels. However, the 3-month average remains in the positive column, though it did slow to +0.39 from +0.54 in November. On the positive side was the employment component, at +0.16 (slightly down from November's +0.21) and the sales/orders/inventories component was unchanged for the month at +0.03.

Jennifer Coombs
Wall Street Strategies

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