There are two new reports on the U.S. economy worth mentioning this morning. First, data from the U.S. Census Bureau showed that sales of new single-family homes in America plunged by 10.4 percent in December to a seasonally adjusted annual rate of 536K units. That was much worse than economists had expected and the largest monthly decline in almost two years. Regionally, home sales rose in the Northeast (+48.4 percent) but fell in the Midwest (-41.0 percent), the South (-12.6 percent), and the West (-1.3 percent). The inventory of new single-family homes lifted for the fifth month in a row in December, and months’ supply increased to 5.8 at the current sales pace, a 15-month high. The median selling price of new houses sold rose to $322,500 last month, a 7.9 percent increase over the past twelve months that is well above current measures of wage growth and general consumer inflation. There were a few revisions to the prior months’ headline figures and altogether total sales over the past year have fallen by 0.4 percent, the first negative reading for annual growth since February 2016. The post-election spike in mortgage rates has likely been a major factor behind the recent housing weakness as many potential buyers were pushed out of the market. Although new home sales are extremely volatile and account for a relatively small portion of the overall U.S. housing market, this metric is still worth keeping close track of because historically new home sales tend to head sharply lower ahead of a recession.
Elsewhere, the Federal Reserve Bank of Kansas City’s composite manufacturing index showed that activity in the Midwestern region of the country continued to expand at an elevated rate this month. Specifically, the headline index ended January at +9.0, unchanged from December’s downward-revised print and therefore matching the highest reading since May 2014. Under the hood, gauges of production, shipments, new orders, and order backlogs all improved slightly this month but employment moderated and foreign demand continued to contract. Mangers’ outlooks for future factory activity, though, continued to improve markedly in December, including solid gains in hiring expectations and capital expenditure plans. Comments from surveyed managers in the 10th Fed district were generally positive this month:
- “Our backlog has increased significantly since just the end of the year. New budgets and higher oil and gas prices have added optimism in our industry.”
- “A very strong December and is being followed up with a great start to January. We are looking at adding employees for the first time in two years.”
- “Thinking positively about 2017, know more by mid-year. We have invested in '15, '16 and '17 to upgrade processing equipment capable of better quality and more efficiency. We can't afford to get behind the ‘power curve’ with machinery replacement and we can't afford to be wrong about future business either.”
- “We are hoping that with the election out of the way, things will get busy. However, a trade war would be devastating as so much of our raw material comes from overseas.”
Sources: Econoday, Bloomberg, ZH, Twitter, U.S. Census Bureau, FRBR, FRBSLPost author: Charles Couch