Housing Starts End Year Solidly, Up 4.4% A burst of groundbreakings for single-family homes last month offered hope a key segment of the housing market is revving up after years of malaise.
Housing starts rose 4.4% in December from a month earlier to an annual rate of 1.089 million, the Commerce Department said Wednesday. Starts on single-family homes, which exclude apartments and reflect the bulk of the market, rose to a rate of 728,000, the highest level since March 2008.
December’s jump in construction followed a sizeable drop in November.
Building permits for single-family homes climbed 4.5%, the biggest increase since September 2012. Permits for all private housing, however, fell 1.9% to an annual rate of 1.032 million amid a decline in demand for apartment construction. Permits are a bellwether for construction activity in coming months.
The average rate on a 30-year fixed mortgage fell to 3.66% last week, the lowest level since spring 2013, according to Freddie Mac. (Charts from Haver Analytics)
Hot Art Market Lends Sizzle to Christie’s, Sotheby’s Sales Auction Houses Set Records as First-Time Buyers Pursue Trophy Works
Great news for housing: First-Time Buyers are back! 
Don’t Bet Against US Consumers
Ed Yardeni:
Last week, I put a positive spin on the disappointing retail sales numbers. I noted that despite the downward revisions in October and November and the decline in December, the first two months of Q4 were strong enough, and inflation was low enough during the quarter, to boost inflation-adjusted retail sales (including gasoline) by 7.7% (saar) last quarter. I assumed a 0.8% m/m drop in consumer goods prices during December. In fact, the goods CPI was down 1.2%, raising the quarter’s growth rate to 8.3%.
The Consumer Sentiment Index soared during the first half of January. The overall index jumped from 93.6 during December to 98.2 this month, the highest reading since January 2004. Both the expectations and present situation components soared this month. Solid employment gains along with rising confidence suggest that consumers have the means and the will to spend.
In effect, recent retail sales data look suspicious. David Rosenberg did some math for us:
(…) The data suggest that none of the $2.74 billion of savings from the gas pump was put back into the rest of the spending pie.
In fact, retail spending in other areas fell by $1.45 billion during the month, and if not for the $326 million spent at grocery stores and pharmacies, the decline would have been even greater ($1.78B).
Then again, there is still two-thirds of the total household spending we have yet to see that will come out with the broader consumer expenditure (and income) data on Feb. 2nd.
Rosenberg also goes on pointing out the sharp jump in consumer sentiment surveys:
The improvement in sentiment was breathtakingly widespread across income classes, regions and age cohorts.
My two cents:
- Economists work with annualized numbers but consumers act with what’s in their pockets. The layman’s reality is that the savings from the gas pump trickle in every week or so at the rate of $10-20 per fill-ups. In effect, little of the $2.74 billion of savings from the gas pump could actually be put back into the rest of the spending pie.
- Retail sales stats do get revised twice. Here’s Doug Short primer on that:
Those of us who routinely track this series know that the Advance Estimate will be followed by a second estimate next month and a third estimate the month after. How big are those revisions? Are they big enough to warrant skepticism about the Advance Estimate?
See for yourself. Here is a visualization of the cumulative change from the first to third estimates from January 2007 through October 2014, the most recent month for which we have all three data points.
As we see, revisions abound, and they move in either direction, although mostly downward during the last recession.
Since 2007,
there were 45 upward revisions and 49 downward revisions. The absolute mean (average) revision was 0.35%, which comprises a 0.28% average for the upward adjustments and -0.41% for the downward adjustments.
Given recent trends and retailers’ generally satisfied comments on Christmas sales, I would venture to predict that revisions will continue positive.
Bank of Canada Shocks With Rate Cut Canada’s central bank delivered a shock interest rate cut Wednesday, its first since the recession, describing it as “insurance†against the potential economic toll of collapsing oil prices.
The Bank of Canada, which had been widely expected to hold rates steady before raising them later in the year or in early 2016, cut its benchmark overnight rate by a quarter percentage point to 0.75%—the first cut to the rate since April 2009, when the economy was mired in recession.
Sliding oil prices, which the central bank said it expects will recover to around $60 in the medium term, will erode growth and inflation for Canada, it said in a statement announcing the interest-rate cut. It lowered its growth forecast for the first half of 2015 to 1.5%, and to 2.1% for the full year from 2.4%. (…)
Unlike the U.S., Canada is a net exporter of oil, with energy extraction and related industries accounting for a much bigger share of the economy. Around 11% of Canada’s GDP stems from direct and indirect energy activities, according to government data. (…)
Last week, Timothy Lane, the bank’s deputy governor, after delivering a speech titled “Oil Prices and their Impact on the Economy,†told a trade group in Madison, Wis., that there wouldn’t be any “drastic†changes in the Bank of Canada’s policy outlook.
The Canadian dollar fell sharply Wednesday, dropping 1.8% from late Tuesday, moving to 81.29 U.S. cents in late trading from 82.55 U.S. cents Tuesday, according to data provider CQG. (…)
In a review of its industry forecasts, the Canadian Association of Petroleum Producers, an industry group, estimates a 33% decline in capital spending in 2015 and a projected slowdown in growth of oil production from its prior forecast of about 65,000 barrels a day in 2015 and 120,000 barrels a day in 2016.
According to the review, capital investment in Western Canada, including the oil sands, will total $46 billion in 2015, down 33% from $69 billion invested in 2014. The new 2015 forecast for total Western Canadian oil production is 3.6 million barrels a day, about 150,000 barrels a day higher than total 2014 production of 3.5 million barrels a day, with a similar rate of growth expected in 2016.
ECB action likely to stoke currency wars
A lower euro would boost exports and, crucially, lift inflation. If it looks as if the ECB has joined an increasingly hostile global currency war, there is a good reason: it has. Like the Bank of Japan, the ECB is using an important reserve currency as a policy weapon.
EARNINGS WATCH
RBC Capital update: 19.0% of the S&P 500’s market cap (66 companies) has reported. So far, earnings ex-financials are beating by 5.5% while revenues have surprised by 0.1%.
Expectations are for revenue, earnings, and EPS growth of 0.5%, 1.4%, and 3.1%. Excluding Energy, these numbers are 3.5%, 4.3%, and 6.1%, respectively. This excludes the likelihood of beats which have come in above 3% historically.
With the dollar up ~9% YoY, many are focused on the impact to company results. Domestically-oriented companies are on track for 11% earnings growth, while forecasts
point to a 1.1% drop for more globally-oriented names.