What I Saw Last Week

The Case Shiller Index 20-City Index rose by 5.8% y/y in November, up from 5.5% in October – I had anticipated it to have risen by 5.7%. The Seattle area annual rate rose by 9.1% – above my forecast for an increase of 8.8%.

Case Shiller1

Case Shiller2

Month-over-month, the 20-City Index barely moved (+0.1%) and the Seattle index remained static. This suggests to me that Seattle, and broader market, will start to see price gains ease as we move through 2016.

Other market of interest include Dallas, Denver and Portland, Oregon where prices are now at record levels and I would question whether these growth rates are sustainable.

Consumer Confidence rose to 98.1 in January from a downwardly revised 96.3 (from 96.5) in December. I had forecast an increase to 96.8.


The uptick in January flowed from consumers’ optimism about the outlook with the Expectations Index increasing from 83.0 to 85.9. Consumers are still feeling relatively upbeat about the labor market as those anticipating more jobs in the months ahead increased from 12.4% to 13.2% while those anticipating fewer jobs decreased from 16.8% to 16.5%. Also of interest was the proportion of consumers expecting their incomes to increase improved from 16.3% to 18.1%, although there was also a pickup from 9.5% to 10.8% in the proportion of consumers expecting a reduction in income.

Another takeaway from the report was that, according to the Conference Board, consumers do not foresee the volatility in financial markets as having a negative impact on the economy.

New Home Sales were up 10.8% month-over-month in December to a seasonally adjusted annual rate of 544,000 versus 491,000 in December (revised from 490,000). This was well above my forecast for an increase to 506,000.

New Home Sales


The sales gains in December were broad-based by region, led by the Midwest (+31.6%) and followed by the West (+21.0%), the Northeast (+20.8%), and the South (+0.4%).

Lower prices appeared to help drive the pickup in sales. The median sales price of $288,900 in December was down 4.3% year-over-year while the average sales price of $346,400 was down 7.3% year-over-year.

At the current sales pace, there was a 5.2-months supply of new homes for sale.

An estimated 501,000 new homes were sold in 2015, which is up 14.5% from 2014.

US Pending Homes Sales in December were mostly unchanged, but inched forward slightly, fueled by a large increase in the Northeast that outpaced declines in the other three major regions. The Pending Homes Sales Index rose by 0.1% to 106.8 in December – below my forecast for an increase of 0.8%.

Pending Sales

Overall, while sustained job creation is spurring more activity compared to a year ago, the ability to find available homes in affordable price ranges is difficult for buyers in many job creating areas. With homebuilding still grossly inadequate given current demand, steady price appreciation and tight supply conditions aren’t going away any time soon.

I would also note that the index has now seen year-over-year increases for 16 consecutive months.

The advance fourth quarter US GDP report was quite weak, showing an annualized rate of real GDP growth of just 0.7%. I had forecast 0.9%.



The report showed weak quarter-over-quarter readings for all key components. Personal consumption expenditures were up just 2.2% versus 3.0% in the third quarter gross private domestic investment declined 2.5% after declining 0.7% in the third quarter. Exports were down 2.5% after increasing 0.7% in the third quarter and imports were up 1.1% after increasing 2.3% in the third quarter. Government spending was up 0.7% after increasing 1.8% in the third quarter.

All in all, a pretty disappointing report but not suggestive of an economy that is set to go into a recession at any time in the near future.

The final Consumer Sentiment number for January dipped to 92.0 from the preliminary reading of 93.3. I had expected it to rise to 93.2.

Consumer Sentiment

The Index of Consumer Expectations was unchanged in January at 82.7 while the Current Economic Conditions Index dropped to 106.4 from the final reading of 108.1 for December. It was said the stock market declines and weakened prospects for the national economy factored into the dip in sentiment.

One item highlighted in the review of the survey was that favorable financial prospects have become dependent on very low inflation. With the Fed aiming to drive inflation higher, that could potentially become problematic for consumer spending if the inflation rate exceeds wage gains.

What to Watch for This Week

Data on US Incomes and Spending should show both having risen by 0.2% in December.

Construction Spending in December is likely to show a marked improvement from the 0.4% contraction seen the prior month. Look for it to have risen by 0.5%.

US Payrolls rose by 292,000 in December and I am looking for the January figures to be positive, just not by as much. Look for the country to have added 188,000 new jobs.

The US Unemployment rate will remain at 5%.

Consumer Credit rose by 13.9B in November and the December data should show an expansion of $16.5B.