What I Saw Last Week
September U.S. New Home Sales blew out my forecast for a small pullback to 555,000 and came in at a seasonally adjusted annual rate of 667,000 (+18.9%). It is notable that the increase marked the fastest pace of new home sales in 10 years.
In as much as I should be disappointed in the inaccuracy of my forecast, I am not. I am thrilled! Why? Well, as owners in existing homes move on to newly built ones, it frees up availability of smaller starter homes for those looking to become homeowners for the first time, hopefully easing modestly the log jam that has been in place regarding housing availability.
Based on the current sales pace, the inventory of new homes for sale fell to a 5.0-months’ supply versus 6.0 months in August. The median sales price of a new home increased 1.6% year-over-year to $319,700 while the average sales price jumped 5.2% to $385,200. Noticeably, homes priced at $399,999 or less accounted for 69% of the homes sold versus 72% in August.
The takeaway here is that the sales increases were broad-based, underscoring the point that the rebound in new home sales, which are counted when a contract is signed, was not just a function of a rebound from the depressed activity in the South due to the hurricanes.
The NAR Pending Home Sales Index for September remained unchanged at 106.0 from a downwardly revised -2.8% (from -2.6%) in August – I had forecast a 0.8% increase.
Pending home sales have fallen on an annual basis now for five of the past six months, and I don’t expect much improvement unless supply issue eases, which is unlikely even with the positive new home sale numbers discussed above.
The advanced reading for GDP showed the U.S. economy increased at annual rate of 3.0% in the third quarter (I had forecast a 2.4% growth rate) marking the second straight quarter the annualized rate has been 3.0% or higher. The last time GDP growth was 3.0% or higher for two straight quarters was Q-2 and Q-3 of 2014.
The headline surprise was driven by the change in private inventories, which contributed 0.7%.
Real final sales, which exclude the change in private inventories, decelerated to 2.3% from 2.9% in the second quarter on some soft consumer spending activity. Q-3 contributions to GDP growth were Personal Consumption Expenditures (+1.62%), Gross Private Domestic Investment (+0.98%), and Net Exports (+0.41%).
Now, granted the hurricanes created some temporary growth headwinds, but when the layers are peeled back, I must say that my takeaway from the report is that U.S. economic activity is proceeding largely at the same ho-hum pace, as evidenced by the prior 12-quarter average of 2.4% for real final sales. The number looks good, but for annual growth to show a 3% increase, Q-4 numbers will have to come in at over 14% – which just isn’t going to happen.
The final Consumer Sentiment number for October showed a slight drop from 101.1 to 100.7, marginally below my call for a drop to 101.0.
The Current Economic Conditions Index edged up to 116.5 from 116.4 and the Expectations Index dropped to 90.5 from 91.3.
Despite the dip, the index remains at its highest monthly level since the start of 2004 and it should also be noted that it is only the second time that the Index has registered above 100 since the end of the record 1990’s expansion.
What to Watch for This Week
Income & Spending data for September should be pretty robust with incomes up by 0.3% and spending up by 0.8% (hurricane induced).
The Case Shiller Index report for August will show the 20-City Index up by 6% year-over-year.
Consumer Confidence in October will likely rise from 119.8 to 121.5.
U. S. Construction Spending rose by 0.5% in August and the September number should show a contraction of 0.2%.
The Federal Reserve meets this week and they are almost guaranteed to leave the Fed Funds Rate alone but I still believe that they will raise rates after their December meeting.
Non-Farm Payrolls in October will impress and show that the nation added 300,000 new jobs in the month following the minus 33,000 seen in September.
Even with this growth in jobs, the Unemployment Rate will rise back up to 4.3% as the workforce expands.