Economic Update

It was a fairly light week, as far as economic data was concerned.

Existing home sales increased in January by +4.3% to 4.57 million units, which was higher than forecast but was somewhat tempered by some adjustments to the December level, which muted the effect.  The median sales price of existing homes was unchanged (based on seasonal adjustments) and the year-over-year change was still negative at -2%.  The ‘months supply’ of homes has declined to the lowest level since spring 2006, at around 6.1 months.  This may be from a decrease in listings than a strong improvement in sales, however.

New home sales fell in January by -0.9% to a seasonally-adjusted rate of 321,000 after four straight months of gains.  This was somewhat tempered by upward revisions in the fourth quarter of last year.  Interestingly, in 2011, only 304,000 new homes were sold—the fewest on record since data began in 1963.  We’ve mentioned this before, but this level is far below that needed to keep up with replacements and demographic needs (think 3 times the current amount).  It seems to be more a matter of how long we trail along at this lower level.

Initial Jobless Claims were flat on the Feb. 18 week at 351,000, but the more relevant four-week moving average fell further to 359,000 (the lowest it’s been since March 2008).  While some disputed the initial stickiness of the numbers early on as well the magnitude of normal labor force size adjustments, the labor market continues to improve on many levels.  Continuing claims fell to 3.392 million (a drop of 52,000).

It may be a bit early to read too much into this, but there has been a historical precedent of upward pressure on rates and increased tendency toward monetary tightening when initial claims levels begin to fall below 350,000 consistently.  Right now, we’re right about the breakeven point, so stay tuned.  But, if this improvement continues—even at a moderate pace—the ‘2014’ target for Fed action may need to occur sooner, barring other factors.

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