U.S. economic indicators were mixed this week, but continue to point to a good start for 2018.
The first estimate of real GDP growth for 2017 Q4 came in a little weaker than expected, at a moderate 2.6 percent annualized rate. Real consumer spending was strong, increasing at a 3.8 percent annualized rate, boosted by post-hurricane auto sales. Business fixed investment increased at a 6.8 percent annualized rate, led by investment in equipment, which increased at an 11.4 percent rate. Residential investment increased at a solid 11.6 percent annualized rate. Inventories were a drag in Q4, as was net trade. The real balance of trade deteriorated as imports surged with the launch of the iPhone 10. Government spending grew at a 3.0 percent annual rate, the strongest gain since the second quarter of 2015.
New orders for durable goods increased by 2.9 percent in December, the fourth increase in the last five months. There was support from the volatile aircraft components. Other heavy industries were good. However, new orders for computers and electronics products eased by 0.2 percent, and new orders for electrical equipment fell by 0.9 percent. The core measure, nondefense capital goods excluding aircraft, eased by 0.3 percent in December after increasing in October and November.
Both new and existing home sales fell in December, in part due to very bad weather in the eastern half of the U.S. Existing home sales were down 3.6 percent in December, to a 5,570,000 unit annual rate, about where they were in December 2016. The market remains very tight at 3.2 months’ worth of available inventory. This will support moderate price gains going forward. The median sales price of an existing home was up by 5.8 percent in December, over the previous 12 months.
New home sales fell with a thud, by 9.3 percent in December, to a 625,000 unit annual pace. This comes after a very strong 15 percent gain in November. The months’ supply of new homes available jumped to 5.7 months’ worth.
Mortgage apps for purchase are up in each of the first three weeks of January, supporting our expectations for improving new and existing home sales in January.
The Leading Economic Index gained 0.6 percent in December, bolstering expectations for a good start to the year. The Coincident Index was up 0.3 percent for the month, and the Lagging Index was up 0.7 percent in December, completing the positive trifecta.
Initial claims for unemployment insurance increased by 17,000 for the week ending January 20, to hit 233,000. Initial claims have been a little choppy through the fourth quarter of 2017 and into early 2018, but remain in a very low range. Continuing claims for unemployment insurance fell by 28,000 for the week ending January 13, to hit a very low 1,937,000.
Both the European Central Bank and the Bank of Japan left their monetary policy unchanged after meetings this week. The cumulative implied odds of a fed funds rate hike for March 21 have increased to about 75 percent.
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