Weekly Economic Update

(+) The ISM Manufacturing survey came in stronger than expected for December, at 57.0 versus a forecasted 56.8, but was a bit lower than November’s 57.3 result.  Underlying data was similarly strong, little changed from the prior month, with higher readings in new orders (actually, the best since spring 2010) and employment and a bit of contraction seen in production and inventories.  Despite the lower reading by a few tenths compared to the prior month, which implies lower ‘acceleration’ of growth (that’s the sneaky background behind diffusion index readings—a ‘50’ implies no change over the preceding month, while a number over 50 implies growth to some degree), conditions continue to point to strengthening.

(0) The Chicago PMI fell from a 63.0 reading in November to 59.1 for December—worse than the anticipated down to 60.8.  Underlying the core number, though, declines were a bit more widespread, with over 5-point drops in new orders, production and employment.  While a negative from a nominal standpoint, anything near 60 signifies solid accelerating growth (per the diffusion index note above).

(+) The final December release of the Markit PMI rose to 54.7 from the initial 54.4, to match November’s figure.  On par with similar metrics just noted above, underlying items were little changed, including output and new orders; however, employment gained a few points.

(+) The Case-Shiller home price index for October rose +1.05%, surpassing the forecast of +0.95%.  Each of the 20 indexed cities posted a positive return—led by near-2% gains in Miami, Atlanta and Detroit (the latter being perhaps a ‘value’ play of sorts).  The year-over-year gain came in at +13.6%, while the index continues to plod along below its peak level from the 2006 pre-bust period.  From a variety of estimates we pay attention to, it appears home prices are still poised to move upward in 2014, albeit at a slower rate than in the last several years as a better balanced is reached between inventory levels and possibly higher mortgage rates.

(-) Pending home sales for November stabilized higher with a slight gain of +0.2% on the month, which underwhelmed relative to expectations of a +1.0% rise.  However, at the same time, October’s sales number was revised lower by -0.6%.  For the year-over-year period, the index is down -1.6%.  Interestingly, all-cash home sales rose from 39% in October to 42% in November, with over-50% proportions in the deep South, Nevada and Michigan, where prices have been cheaper.  This implies a continued trend of investor- and retiree-driven sales activity, which is better than no activity, but could end up being problematic for some markets if it falls off, which real estate investor behavior can tend to do.

(+) Construction spending rose +1.0% for November, which surpassed expectations calling for a +0.6% increase; the release was coupled with a small revision for October and sizable +1.7% revised Sept. figure.  Private residential spending rose +1.9%, as seen in housing start figures, while non-residential gained +2.7%.  However, these strong private market results were offset by government spending weakness weighed down by a -3.7% drop on the Federal side and -1.7% in state/local—both of which were largely expected and in keeping with trend.  Year-over-year, spending is up +5.9%, with private sales gaining +8.6% and government falling a fraction of a percent.

(0) Even though auto sales had a mixed December—likely due to the timing of the Thanksgiving holiday and especially cold weather nationwide—the industry experienced its best annual performance since 2007, seeing 8% growth for the year and reaching 15.6 million vehicles sold.  This disappointed analysts, however, who called for 16 million.  Consumers appear to be feeling more confident in such large purchases; however, cars are also lasting longer, which is one reason purchasing behavior didn’t kick in as quickly after the recession.

(+) The Conference Board consumer confidence survey drifted higher from last month’s 72.0 to 78.1 for December—beating a forecasted 76.0 reading.  Within the survey results, expectations for the future improved by a strong 8 points, and consumer assessments of present conditions ticked upward as well.  Also positively for the survey, the ratio of respondents reporting that jobs are plentiful versus hard to find improved to the best level since late 2008 (although it remains sharply in the negative).  While signs of confidence are coming back from lows seen during the autumn government shutdown, several weak areas such as employment, could still stand to see better days ahead.

(+) Initial jobless claims for the Dec. 28 ending week came in at 339k, which was little changed from the prior week, but came in below the consensus calling for 344k.  Continuing claims for the Dec. 21 week fell to 2,833k, which was also below consensus estimates of 2,900k.  As we’ve noted previously, the holiday period can sometimes make seasonal adjustments a bit difficult, which adds to the more volatile results—more consistent readings likely in coming weeks.

Period ending 1/3/2014

1 Week (%)

2014 YTD (%)

2013 Full Year

DJIA

-0.03

-0.62

29.75

S&P 500

-0.51

-0.90

32.39

Russell 2000

-0.42

-0.65

38.82

MSCI-EAFE

-0.49

-0.89

22.78

MSCI-EM

-1.81

-2.31

-4.98

BarCap U.S. Aggregate

0.14

0.05

-2.02

 

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2012

0.05

0.25

0.72

1.78

2.95

12/27/2013

0.07

0.40

1.74

3.02

3.94

12/31/2013

0.07

0.38

1.75

3.04

3.96

1/3/2014

0.07

0.41

1.73

3.01

3.93

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