S&P Corelogic Case-Shiller HPI
Case-Shiller home prices firmed in July, to a 0.3 percent adjusted gain for the 20 city index. The trend is favorable with the year on year rate rising 2 tenths to an unadjusted 5.8 percent and in line with other home price readings which are also roughly at the 6 percent rate. The report is for July and looking at cities in Texas and Florida offers a base comparison for pending hurricane effects in August and September. Dallas was at a 7.4 percent yearly rate in July with Tampa at 7.1 percent and Miami at 5.2 percent. Seattle continues to lead the list at 13.5 percent. Home price are a principal source of growth in household wealth along with stock prices and much less so for wages. But the negative side to strong home price appreciation is the lack of affordability which hurts sales in general especially for first time home buyers.
New Home Sales
Weakness in the South pulled down new home sales in August as it did in last week’s existing home sales report. New home sales fell sharply in the month to a 560,000 annualized rate vs. an upward revised rate of 580,000 in July and downward revised 614,000 in June (revisions total a minus 7,000). Sales in the South, which is by far the largest region for housing, fell 4.7 percent in the moth to a rate of 307,000 for a yearly decline of 9.2 percent. But importantly, sales in the west and Northeast were also lower down 2.6 and 2.7 percent respectively with sales in the Midwest unchanged. September in fact was a weak moth for housing demand, evident in this report’s median price which fell a very sharp 6.2 percent to $300,200. Year on year the median is up only 0.4 percent which, in another negative is still ahead of sales where the yearly rate is minus 1.2 percent. Builders, despite late month disruptions in the South moved house into the market, up 12,000 to 284,000 for a striking 17.8 percent yearly gain. But supply had been so thin that the balance is now at a traditional level, at 6.1 months vs. 5.7 and 5.3 months in the prior two months and 5.1 months a year ago.
Weakness in the hurricane states of Texas and Florida pulled down consumer confidence to 119.8 in September, a level that is still unusually strong. And strength is the message from this report especially the assessment of the labor market as those saying jobs are currently hard to get keeps falling, down 3 tenths to 18.1 percent in a result that will firm expectations for next week’s September employment report. The outlook for the future of the jobs market is no less favorable with those expecting more jobs to open up 6 months from now surging 2.7 percentage points to 19.5 percent. Another reading of special note is the income expectations which include the effects not only of the jobs market but also housing and the stock market. Here, the spread between optimists and pessimists keeps widening with those awing gains at 20.5 percent vs. 8.3 percent seeing declines. This is a very favorable reading pointing to fundamental confidence in the economy. A possible in the report, though may prove to be only temporary and tied to the effects of the hurricane on gas prices, is a large 4 tenths jump in inflation expectations to a 4.9 percent level that is still softy for this particular reading. Clear weaknesses in the report include downticks in buying plans for houses and autos. But this report is about strength despite the hurricane related downticks in September, the data continues to speak to unusual demand in the labor market and the health of the consumer.
The purchase index rebounded 3.0 percent following the prior week’s unusually steep 11.0 percent loss, lifting the year on year rate a couple of percentage points to plus 4.0 percent. The index has been swinging sharply recently but the overall trend, despite low mortgage rates is soft and hints at further trouble for a housing sector that is mostly stumbling into the year end. Other data includes a second straight steep decline for the refinance index, down 4.0 percent in the week, which offset the gain on the purchase side to pull the composite down 0.5 percent the week.
Pending Home Sales Index
Existing home sales have been on the decline as signaled all along by the pending home sales index which is down a very steep 2.6 percent in the latest reading which is for August. Hurricane Harvey’s late August hit on Texas didn’t help pending sales in the South which fell 3.5 percent but pending sales show across the board weakness: Northeast down 4.4 percent, Midwest down 1.5 percent and the West down 1.0 percent. Pending sales nationwide are down a year on year 2.6 percent while final sales of existing homes are down 1.7 percent. The pending index has been on a tailspin this year peaking at 112.3 in February and now down at 106.3 for a yearly decline of 5.3 percent. New home sales, along with sales of existing homes, have also been moving lower making for a housing sector that is visibly stumbling into the year end.
Second quarter GDP proved strong at an as expected 3.1 percent annualized rate for the third estimate driven by consumer spending at a 3.3 percent rate. Nonresidential fixed investment, at a 6.7 percent rate, was also a strong contributor and offsetting a 7.3 percent decline for residential investment. Government purchases, at minus 0.2 percent, were a slight drag on the quarter while both net exports and inventories were slight positive. GDP prices like other inflation measures were soft, up 1.0 percent overall and 1.1 percent for the core.
Hurricane effects are apparent in weekly jobless claims data but are far from overwhelming. Initial claims rose 12,000 in the week of Sep0tember 23rd to a level of 272,000 that is slightly below economists’ predictions. Claims in Texas continue to come down, at an unadjusted 20,169 in the week, roughly double the average but a 1/3 of their peak following Hurricane Harvey’s landfall in late August. Claims in both Florida and Georgia, both hit by Hurricane Irma early on this month , are now on the rise but less catastrophic, with Florida at 18,212 this week vs 10,052 in the week prior, and at 7,917 for Georgia which is up from 4,760. Claims in Puerto Rico, which has since been devastated by Hurricane Maria and where claims are being estimated by the Labor Department, fell to an estimated 2,248 from 2,416. Continuing claims remain very steady and have yet to show any hurricane impacts, at 1.934 million in lagging data for the week of September 16th for a 45,000 decline with the 4-week average at 1.950 million. This average has been roughly unchanged since mid-August. The unemployment rate for insured workers is unchanged at 1.4 percent.
Personal Income and Outlays
The next Federal Reserve rate hike may not be in December after all, based on an unexpectedly weak personal income and spending report that includes very soft inflation readings. Income is the best news in the report as it managed the expected 0.2 percent August gain getting boosts from proprietor income, transfer receipts and also rent. Wages & salaries, in part reflecting a decline in hours, came in unchanged though this follows strong growth in the prior two months. Another weakness in today’s report is a 1 tenth downward revision to overall July income which now stands at 0.3 percent. The savings rate held unchanged in August at a moderate 3.6 percent. Now the bad news, spending came in at only 0.1 percent as spending on durables, the likely result of Hurricane Harvey’s late month hit on Texas and related decline in auto sales, fell a very steep 1.1 percent to fully reverse strength in the prior month. Spending on both nondurables and services actually inched forward in August to 0.3 percent each. The inflation readings is where the really bad news a lies. The core PCE price index, the Federal Reserve’s central inflation gauge inched up only 0.1 percent, while the year on year rate fell backwards, down 1 tenth t o1.3 percent for the weakest result since November 2015. Overall prices, likely getting a small boost from a Harvey related spike in gasoline prices, up 0.2 percent6with this yearly rate ,however, also moving backwards , down 1 tenth to 1.5 percent. All these inflation readings came in no better than the low estimates of economists. Data in this report, after inflation adjustments, arte direct inputs into third quarter GDP and the results will pull down estimates. Real spending fell 0.1 percent in August to cut in half July’s 0.2 percent gain.
Consumer sentiment ends this month about where it was at mid-month., at 65.1for September wh9ichg is still strong but down a sizable1.7 points from August. Hurricane effects are likely h behind the easing as respondents in Florida and Texas reported doubts about their financial situation. Yet confidence remains very high with the 9 month average at 96.2, this compared with 91.9 and 92.9 at this time in 2016 and 2015 and is the best score since 2000.Details in the report show a 3.3 point decline for expectations to 84.4 an index that is still up 2.1 percent year on year, and a 0.8 point gain for current conditions to 111.7 which is up a yearly 7.2 percent. Inflation expectations, watched closely by FOMC policy makers remain a negative, unchanged at 2.7 percent despite post hurricane pressures in gasoline prices. Consumer spending hasn’t been showing the kind of strength that consumer confidence readings have, a contrast underscored by the weakness in this morning’s consumer spending data. But the strength of confidence in general including confidence on the business side, is perhaps along with the lack of inflation, the biggest story of the 2017 economy.