U.S. economic data remains positive at the end of a fairly quiet week. January housing data bounced back after a weak December. The Federal Reserve released the minutes of the January 31/February 1 Federal Open Market Committee. We heard more discussion of tax reform this week from Washington. President Trump plans to release his plan by mid-March. Treasury Secretary Mnuchin hopes to have a deal by the end of the summer.
Sales of new single-family houses increased in January by 3.7 percent, after falling in December. Still, at an annual rate of 555,000 units, new home sales in January 2017 were weaker than all but four months of 2016. Months’ supply of new homes stayed at 5.7 months’ worth. The median sales price of a new single-family house was 7.5 percent higher in January than a year ago.
Existing home sales bounced back in January, gaining 3.3 percent, to a 5,690,000 unit rate. This is the fastest sales rate since February 2007. The months’ supply of existing homes for sale has dwindled to 3.6 months’ worth over December and January, which ties the all-time low for that metric, set in January 2005. The median sale price of an existing home was up 7.1 percent in January over the previous 12 months.
Labor markets remain tight. We expect average hourly earnings to reaccelerate in the February jobs data, to be released March 10. Initial claims for unemployment insurance increased inconsequentially, by 6,000, for the week ending February 18 to reach 244,000. Continuing claims fell by 17,000 to hit 2,060,000 for the week ending February 11.
The minutes of the January 31/February 1 FOMC meeting show concern by committee members over appropriate communications strategy as they prepare to raise the fed funds rate again this year. The minutes confirm the consensus view for ongoing gradual rate hikes this year and next. Some committee members stressed that a “gradual pace” means more than one or two rate hikes this year. We expect three rate hikes this year. The next rate hike could come as early as March 15, but financial markets are still discounting that possibility. We expect the next fed funds rate hike to come on May 3. The fed funds futures market still slightly favors June 14.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 02242017.