Media
THE NORTHWEST ECONOMIC MAINLINE 1-30-2012 to 2-03-2012
What to Watch This Week
• Personal income and spending figures for December should show modest increases – look for growth of both by 0.4 percent.
• The Case Shiller Index was down by 3.4 percent in October and I am looking for modest improvement here. My call is for the annual decrease of the 20-city index to come in at -2.2 percent.
• Consumer confidence has seen a nice uptick recently and this is likely to continue. My call is for the January numbers to rise to 67.0 from 64.5 seen in December.
• Construction spending in December is likely to have expanded by 0.4 percent with residential spending still leading the way.
• Initial unemployment claims will stay at about 375,000.
• All eyes on the payroll report. We added 200,000 jobs in December and I believe that data will show that we added a further 225,000 in January.
• With the increase in employment I anticipate that the unemployment rate will drop from 8.5 to 8.4 percent.
What I Saw Last Week
• Over recent weeks we have seen a big jump in mortgage applications and this cannot continue unabated. I was not surprised to see, therefore, that applications slipped 5 percent for the week ending 1/21. Mortgage rates are sure to remain low through 2012 which takes some of the incentive away from a “hurry-up and buy” mentality.
• Pending home sales dropped by 3.5 percent in December - a little above my call for a 3 percent contraction.
• Unsurprisingly, the Federal Reserve held rates at 0.25 percent. That said, the announcement that they intend to keep rates low through 2014 was a surprise. I am going to have to lower my forecast model for interest rates now!
• Initial unemployment claims rose to 377,000 from 356,000 the prior week – I had called for an increase to 375,000. The jump in weekly initial claims is the wrong move directionally, yet the uptick did not expose any material deviation from the problems with seasonal adjustment factors that the Department of Labor said impacted claims levels in recent weeks. Moreover, the uptick did not alter the improving trend in the 4-week moving average, which decreased by 2,500 to 377,500.
• New home sales came in at an annualized figure of 307,000 in December from 314,000 the prior month. That was below the forecast of 321,000 and marks a 7.3% decline from the year-ago period. The drop in new home sales occurred in the face of a 12.8% decline in median home prices to $210,300, which is far from music to the ears of homeowners attempting to sell existing homes.
• The national economy expanded at an annual rate of 2.8% in the fourth quarter. That was below my estimate of 3.0%, but up from 1.8% growth in the third quarter. An acceleration in personal consumption expenditures (+2.0%) and in residential fixed investment (+10.9%) provided positive contributions to the change in GDP, adding 1.45 percentage points and 0.23 percentage points, respectively. A downturn in federal government spending (-7.3%), a deceleration in nonresidential fixed investment (+1.7% from +15.7% in Q3), an acceleration in imports (+4.4% from +1.2% in Q3), and a larger decrease in state and local government spending (-2.6%), partly offset the strength in other areas.
These are not altogether terrible numbers but clearly demonstrate that our expansion remains tepid. The concern for the market is that the jump in inventories will act as a drag on Q1 GDP growth since there is unlikely to be a build from current levels. Accordingly, there is a bit of a sting in the thought that Q1 GDP could fall back to the "new normal" zone that is closer to 2.0% or below.
• The University of Michigan Consumer Sentiment Index for January was revised from 74.0 in the preliminary reading to 75.0 in the final reading. The upward revision was better than the consensus estimate, which was pegged at 74.2. There were also upward revisions to the preliminary readings for the Current Conditions Index (from 82.7 to 84.2) and the Expectations Index (from 68.4 to 69.1).
It stands to reason that a moderation in gas prices, improved labor market trends, and rising equity prices were factors contributing to the notable uptick in consumer sentiment in January versus the final reading of 69.9 for December.
