What I Saw Last Week

The Case-Shiller Index data for March saw the 20-City index up by 5.9% year-over-year matching the annual gain seen in February and representing the fastest rate of growth since July of 2014.


Among the 20 cities surveyed for this report, Seattle, Portland, and Dallas just reported their highest year-over-year gains while the smallest gain of 4.1% was seen in New York.

I continue to believe that households are staying in their homes longer rather than selling and trading up.  Additionally, I would contend that if mortgage rates start to rise further, this may lead households to further delay moving which will continue to put pressure on housing as inventories will remain at depleted levels and price growth will continue at above average levels.

While it is true that prices cannot rise indefinitely, there is really no way to tell when prices and mortgage rates will force a slowdown in housing.

Personal Income & Spending in April exactly matched my forecast for both to rise by 0.4%. The personal savings rate as a percentage of disposable income held steady at 5.3%.


An increase in wages and private salaries (+0.7%) drove the uptick in personal income in April.

Real disposable personal income was up 0.2% for the month and up 1.9% year-over-year versus up 2.0% in March. Real PCE (Personal Consumption Expenditures), the core component of the GDP report, was up 0.2% in April. Spending on goods was up 0.7% while spending on services was flat on a chained basis.

The takeaway from the report is the year-over-year changes for the PCE Price Index (1.7% versus 1.9% in March) and the core-PCE Price Index (1.5% versus 1.6% in March) decelerated from the prior month. That is unlikely to alter the prevailing view that the Fed will raise the target range for the fed funds rate at its June meeting, although it will stir some belief that another rate hike this year may not happen.

Consumer Confidence in May slipped to 117.9 – I had forecast a smaller decline to 119.5 – from a downwardly revised 119.4 (from 120.3) in April.

The Expectations Index dropped from 105.4 in April to 102.6 in May while the Present Situation Index rose slightly from 140.3 in April to 140.7 in May.


Despite the dip in May, the consumer confidence reading remains close to a 10-year high.

Of interest to me is the Conference Board report on the share of respondents planning to buy a home within six months. It indicated that 5.8% of respondents were planning to buy a home in May, compared with 6.4% in April. Despite monthly volatility, the trend in the share of respondents planning to buy a home within six months has been climbing signifying further trust in the housing market.

The takeaway from the report is that a downshift in consumers’ view of the short-term economic outlook triggered the lower overall reading for April.

The NAR Pending Home Sales Index decreased 1.3% in April for a second consecutive monthly decline and fell 3.3% below its level a year ago. The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, decreased to 109.8 in April, down from a revised 111.3 in March.  I had forecast an increase of 0.8%.

Pending Index

The PHSI was lower in the Northeast, South, and Midwest by 1.7%, 2.7%, and 4.7% respectively, while jumping 5.8% in the West. Year-over-year, the PHSI fell in all regions, ranging from 0.6% in the Northeast to 6.1% in the Midwest.

Looking ahead, April existing home sales fell 2.3% and the drop in PHSI suggests that this index will contract further in May. The NAR cites, as dual headwinds, spring inventory levels that are down 9.0% from a year ago, and price increases that continue to exceed wage increases. However; I would note that builder sentiment continues on an upward trend, and new home sales have risen in 2017.

The takeaway here is that, as the economy continues to add jobs, rising demand among first-time buyers will support new and existing sales in 2017.

U.S. Construction Spending in April was very disappointing as total spending dropped by 1.4% (I had forecast an increase of 0.5%) month-over-month. The mitigating factor, however, came in the understanding that March construction spending was upwardly revised to show a 1.1% increase versus an originally reported decline of 0.2%.

Con Spend

Total private construction spending declined 0.7% in April, with private residential spending down 0.7% and private non-residential spending down 0.6%. A 1.9% decline in manufacturing spending and a 1.4% decline in power spending led the downturn in non-residential spending. Despite the April decline, private construction spending was up 10.4% year-over-year.

Residential spending in aggregate was down 0.9% in April while non-residential spending was down 1.7%. On a year-over-year basis, total construction spending was up 6.7%.

The Non-Farm Payroll report for May produced a headline disappointment with non-farm payrolls coming in lower than expected and far lower than the job gains reported in the ADP Employment Change Report last Thursday.


May non-farm payrolls rose by 138,000 (I had forecast a more robust 185,000). Over the past three months, job gains have averaged 121,000 per month – enough to cover population growth but not much more. April payrolls were revised lower to 174,000 from 211,000 and the March numbers were also revised down to 50,000 from 79,000.

The takeaway from the employment report is that wage inflation continues to be dormant despite increased hiring activity. That understanding will temper concerns about the Fed having to walk an aggressive rate-hike path.

The U.S. Unemployment Rate in May dropped from 4.4% to 4.3% – I had forecast no change.

U RAte

Persons unemployed for 27 weeks or more accounted for 24% of the unemployed versus 22.6% in April and the U-6 unemployment rate, which accounts for both unemployed and underemployed workers, decreased to 8.4% from 8.6% in April.

The drop in the unemployment rate can be attributed to a drop in the labor force participation rate which fell to 62.7% from 62.9%.

What to Watch for This Week

Very skinny week for data this week with just one notable announcement. On Wednesday, data regarding Consumer Credit in April is released and I anticipate that it will show an expansion of $15.0B.