November Home Sales, Income and Spending, Durable Goods Orders, Q3 GDP

Naughty and Nice, Home Sales Stutter but GDP Roars Ahead

  • New Home Sales for November declined by 1.6 percent to an annual rate of just 438,000 units.
  • November Existing Home Sales fell by 6.1 percent, to a 4,930,000 unit annual rate.
  • Personal Income in November increased by 0.4 percent. Real disposable income gained 5 percent.
  • Consumer Spending increased by 0.6 percent. Real spending was up 7 percent.
  • New Orders for Durable Goods dipped in November by 0.7 percent.
  • Third Quarter real GDP growth was revised up significantly to a 5.0 percent annualized rate.

Most economic data at year-end is showing strong momentum and stock prices are hitting new records. Third quarter real GDP growth was revised up significantly, to a 5.0 percent annualized rate, the strongest growth rate since 2003Q3. The lump of coal in the Christmas stocking is home sales. Existing home sales for November eased by 6.1 percent to a 4,930,000 unit annual rate, the weakest sales rate since last May. Existing home sales dipped across all four census divisions in November. On a month-to-month basis, median sales prices dipped too, down 1.1 percent for the month, but still up 5.0 percent from a year ago. The months’ supply stayed tight at 5.1 months’ worth, suggesting that tight supply is a constraint on existing home sales. Sales of new homes also fell in November. They were down by 1.6 percent to a 438,000 unit annual rate. Sales of new homes have been range bound for two years, through 2013 and 2014, and this is keeping home building subdued. We expect stronger labor markets, increasing consumer confidence, easing credit standards and pent-up demand to be positive factors for new home sales in 2015.

U.S. personal income increased by 0.4 percent in November, the strongest monthly increase since June. Solid job growth and increasing pay boosted wages and salaries by 0.5 percent for the month. After adjusting for inflation (in this case deflation) and taxes, real disposable income gained 0.5 percent, the best increase since last February. They got it and they spent it, and then some. Nominal consumer spending increased by 0.6 in November, paced by strong car sales. Real spending increased by 0.7 percent. The personal consumption expenditures price index fell by 0.2 percent in November as energy prices rolled back.

New orders for durable goods eased by 0.7 percent in November, held down by diving defense aircraft orders. These surged in October, by 43.5 percent, so the November numbers look like a normal correction. Shipments were also down in November, by 0.4 percent, after falling by 0.1 percent in October. Soft shipment numbers for October and November suggest that inventory accumulation in Q4 may be a drag on GDP growth for the soon to be complete fourth quarter.

The third estimate of 2014Q3 real GDP was revised up significantly to show a 5.0 percent annualized growth rate. Both consumer spending and business fixed investment estimates were boosted. A strong GDP report, sub-$2 gasoline in many areas and a surging stock market are all positives for consumer confidence at year end. Add in robust job growth and we have all the ingredients for solid holiday sales.

After stuffing all of the recent U.S. data into the economic sausage machine it looks like we will be revising our expectations of the Q4 real GDP growth upward, to around 2.0 to 2.5 percent. However, we continue to expect more moderate growth for 2014Q4 real GDP, after two very strong quarters in Q2 and Q3. Defense spending and inventories are shaping up to be drags on Q4, and consumer spending is unlikely to add much to growth in Q4 given that it was strong in Q3.

Market Reaction: U.S. equity markets opened with gains. Treasury yields are up at the long end of the yield curve. NYMEX crude oil is up to $56.20/barrel. Natural gas futures are sliding to $3.18/mmbtu.

This is the last Comerica Economics publication of the year. See you in 2015!

For a PDF version of this Comerica Economic Alert click here: New_Home Sales 12-23-14.

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