Afternoon Note
While New York City experienced a lighter storm impact that originally expected, the stock market is being bombarded with disappointing news today. The Dow Jones Industrial Average is having its worst session in quite some time; earlier, the index was down by almost 400 points, but it has since comeback slightly to be down just below 300 points. The last time the Dow experienced a drop this steep was in February 2014. Ultimately, the Dow’s agony can be blamed on seven of the index’s components reporting disappointing earnings and trading lower, in particular Microsoft (MSFT) and Caterpillar (CAT). Echoing CAT’s disappointing economic outlook was the reporting of durable goods orders in December, which unexpectedly dropped by 3.4% for the month after a decline of 2.1% in November. Consensus actually anticipated that durable goods orders would rise by 0.7% in the month. In the early session, there was another wave of economic data that, while fairly positive, was unable to negate the mass selloff.
Firstly, last week’s reading of the FHFA home price report showed about as much life as this morning’s release on the S&P’s Case-Shiller 20-City Composite Index. The seasonally adjusted index rose by 0.7% in November which matched October’s revised figure. Gains were primarily concentrated in the South, the largest region, where Tampa (+1.8%) and Atlanta (+1.7%) showed the largest gains, while gains in the West were also strong, led by San Francisco (+1.1%). Even though monthly sales showed a fair amount of strength, the year-over-year rate edged lower to +4.3% (same for both the adjusted and unadjusted indexes). The rate has been on the decline since November 2013, but we note that the latest reading only made the index flat and could make a reversal to the upside soon. Overall, housing activity was flat, though for most of 2014, however, recent price data hints towards an upside bounce.
Also on the housing front, new home sales were quite positive for the month of December. Sales jumped by 11.6% to a seasonally adjusted annual rate (SAAR) of 481,000 units. This was well above consensus’ range of 445,000 to 470,000 units. Coupled with the Case-Shiller report, there is further evidence in the price appreciation of homes as the median home price jumped 2.2% month-over-month to $298,100, which is up 8.2% over December 2013. However, there was a 2.3% gain of homes on the market in December, leading to a supply of 219,000 units. The gain in homes drew down the supply relative to sales to 5.5 months versus 6.0 months in November. We note that this draw on the supply of homes available is a negative for January 2015 sales, but a positive for homebuilders as they will be needed to bring new homes to the market. On a regional basis, the biggest gainer was once again the South, which jumped 17.7% in December. The Northeast, which is the smallest region, also showed a gain while the Midwest and West showed declines. It looks like lower mortgage rates and improvement in the labor market may finally be giving the housing sector a boost. The chart below shows the number to new home sales relative to supply – which has been relatively consistent.
Lastly, and probably the most surprising, was the Conference Board’s reading on consumer confidence. For the month of January, confidence reached a new recovery best of 102.9, well above the consensus range of 93.5 to 100.0. Gains could be found across most components of the reading, including a 12.7 point surge in the present component to 112.6. Additionally, the jobs-hard-to-get subcomponent showed noteworthy strength in the January jobs market, down 1.6 percentage points to 25.7% which is a positive indication for the monthly employment report. The expectations component, which is probably the most important reading on a day like today, rose 7.9 points in January to come in at 96.4, driven in particular by expected higher income. We note that strength in the expectations for future income points to a combination of strength in the jobs market, the stock market, and also the positive effect of lower gas prices. An additional positive point was the jump in vehicle buying plans for the month, which is another indication of strong confidence in the near term. In the end though, the positive spirit of the consumer has not been reflected in their buying activity, and this is what needs to improve for economic stability.
Comments |
Layoffs in the oil and nat gas industries have bee ongoing for months, despite the media spin of 6 months reflection from now. Those who were employed had well paying jobs, in a very specific industry. What will they do now?, and does ObamaCare now pay their Being Alive Tax? and will their possible UI bennies pay the bills most have run up in their boom days? Oil is back to $65 WTI within a few months. Oil patch job holders aren't qualified to flip burgers, and no burger flippers are needed if customers are very few and far between, as it could happen. Paula Rose on 1/27/2015 6:01:35 PM |
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