INDICATOR: November Consumer Confidence, October New Home Sales and September Case-Shiller Housing Prices
KEY DATA: Confidence: -0.6 points/ New Home Sales: -0.7%/ C-S Home Prices (Month): +0.4%/ Over-Year: +3.2%
IN A NUTSHELL: “The housing market is showing some life and that is good news for builders and the economy in general.”
WHAT IT MEANS: The fourth quarter is not looking good, but maybe we shouldn’t give up hope just yet. We are entering the key shopping season and households may not be irrational exuberant, but they are not depressed either. The Conference Board’s Consumer Confidence Index fell in November, the fourth consecutive decline. You would think that would set off warning bells, but the reality is that the level of the index is still quite solid. In addition, expectations rose, an indication that while current conditions are fading, households still hold out hope that things will turn around. And hope tends to drive demand at this time of year, especially since people are looking for any reason to spend.
Another positive sign is coming from the new housing market. Sales eased back a touch in October but demand is on a clear, upward trend. And purchases are beginning to close in on what might be considered to be a solid sales level. So far this year, total sales are up over 9% compared to the same period in 2018. Unfortunately, the gains are not being shared evenly across the nation. In October, demand rose in the Midwest and West but dropped in the Northeast and South. For the first ten months, sales surged in the South and West but were down almost as sharply in the Northeast and Midwest. As for prices, they were off over the year but much of that had to do with the significant decline in the percentage of high cost homes purchased. That seems to be turning around, though.
The S&P CoreLogic Case-Shiller National home price index rose in September and it looks like the decline over the year is stabilizing. There is an interesting pattern that has occurred since the end of the Great Recession. While the housing price recovery was early and sharp in some of the larger metro areas used in the 20-City index, those gains have faded significantly. Meanwhile, the National index, which includes metro areas of all sizes, is holding up quite well.
There were two Federal Reserve regional bank indices released today and they went in opposite directions. The Philadelphia Fed’s NonManufacturing Index rose sharply but the Richmond Fed’s manufacturing measure softened. That shows how some sectors and parts of the county are doing well while others are faltering, which is right in line with the belief that the economy is growing, but at a modest to moderate pace.
MARKETS AND FED POLICY IMPLICATIONS: The economy is neither a turkey nor a sweet potato pie (I love sweet potato pie!). It is growing, but it would take a politician to say it is in good, let alone great shape. GDP growth is likely to have remained below 2% again in the final quarter of the year and for all of 2019, it looks like it will come in at about 2.25%. So, when I call it the “back to the future economy”, I am simply saying that we are matching the growth that we saw during much of the 2010s. Most people considered that pace to be disappointing, but as I noted then, it is still trend growth. So, saying things are bad would be too harsh. In any event, the holiday is coming, so let me just say:
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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