Have a Happy Thanksgiving, Everyone!

The major equity indices were relatively calm on the busiest travel day of the year, trading roughly flat so far this session. The NASDAQ is riding about 0.4% higher, and managed to hit yet another 14-year intraday high, it was the only index to trade in the green the whole morning. It’s hard to tell which economic release is really eating the market, but thanks to the holiday and the half-trading day on Black Friday, there was a whopping eight reports released this morning. The following are the most noteworthy; however the overall sense is that the fall was very mixed across multiple sectors.

Firstly, initial jobless claims came in much higher than expected during the week of November 22^nd. Initial claims popped by 21,000 to 313,000 for the highest level since early September. We don’t see any special factors contributing to the jump, but if this incline does not reverse in the coming weeks it could mean bad news for the November and December jobs reports. The 4-week rolling average rose by 6,250 to the highest level since September to 294,000. One positive from the report was in continuing claims, which lag by a week, fell by 17,000 to 2.316 million in the week of November 15^th.  Nevertheless, it’s the spike in initial claims rather than the decline in continuing claims that has investors riled up.

There’s a good chance that spending will be strong going into the holiday shopping season as there’s a slight upward nudge in income and spending. Personal income increased by 0.2% in October, after also advancing by 0.2% in September, with the wages and salaries component gaining 0.3% after increasing by 0.2% in September. Personal spending got a boost in the month to 0.2% after 0.0% in September. There was particular strength in the services sector, which rose by 0.3%, matching the September pace. PCE inflation continues below Fed Reserve’s goal, as it rose only 0.1% on a monthly basis, matching the September number. Core PCE inflation advanced 0.2% after a 0.1% increase in September. Year-over-year, headline PCE inflation held constant at 1.4% during October. The personal savings rate (which is savings as a percentage of income) remains unchanged from September at 5.0% in October. Overall, we can see that the consumer sector is improving in terms of bringing in more income and spending that money.

While Philadelphia’s Fed district posted robust numbers and other districts showed improvement, in Chicago, it was a different story. The purchasing managers’ index (PMI) in Chicago reported a November reading of 60.8 versus a strong 66.2 in October. New orders fell by 11.7 points to 61.9, but are still strong. Production also slowed a bit, but remains robust while inventory growth slowed after a 41-year high in October. The most notable negative in the report is a slowdown in employment, which is at its lowest level since March 2014. This report is meant to cover all sectors of the Chicago economy, but it’s hard to make sense of what these numbers mean when most of the components are freakishly high.

While the Conference Board posted a more negative sentiment number this week, so too did the final reading for the University of Michigan’s Consumer Sentiment index, which came in at 88.8 for November compared to 89.4 in the mid-month reading, but better that October’s final reading of 86.9. The current conditions component closed out November at 102.7, which was well above the October reading of 98.3; in contrast to many other indicators, including yesterday's consumer confidence report, this component points to month-over-month improvement in November. The expectations component came in at 79.9, which didn’t change much from October’s reading of 79.6. However, inflation expectations are down thanks to lower gasoline prices with 1-year expectations at 2.6%, slightly down from October’s 2.9% and the 5-year expectations at 2.8%. Below is a chart mapping consumer sentiment against the performance of the S&P 500 over the last 14 years.

In the housing space, new home sales were soft, but sellers were at least getting their asking prices in October. New home sales came in at a lower-than-expected 458,000 pace versus the 455,000 in September which was revised about 12,000 units lower. August sales originally posted 504,000 but were revised lower for a second time by 13,000 to 453,000. Overall the combined 25,000-downward revision points to a weaker-than-expected picture for new home sales. While this report is usually volatile, at its especially evident in the 16.5% surge in the median price for a new home at $305,000. The year-over-year rate, which briefly dipped into the negative column in September, is suddenly now at a positive 15.4%. Data in yesterday’s report from the FHFA and Case-Shiller offer no hint to a sudden acceleration in pricing power. Supply of new home sales for sales remains steady, at 212,000 compared to 210,000 and 207,000 in the prior two months. The monthly sales supply is at 5.6 months compared to 5.5 months in both September and August. The chart below shows the index levels for all four geographical regions. Sales in the Southern and the Western regions declined by 1.9% and 2.7%, respectively, however sales in the Northeast and the Midwest increased by 7.1% and 15.8%, respectively. Year-over-year, new home sales are just about flat coming in around +1.8%.

Lastly, there is further oscillation in the housing market as the pending home sales declined by 1.1% overall in October following a 0.6% increase in September. Versus a year ago, pending home sales were up 2.2% in the month of October. As the chart below indicates, weakness was concentrated in the West which fell by 3.2% in the month while the South decreased by 1.0% and the Midwest dropped by 0.6%. Only the Northeast showed a slightly gain of 0.5%. In general, housing is on a marginal trajectory upward, but relatively flat.