Holiday Consumer Cheer
Consumers became more optimistic and loosened up their wallets in November which helped boost retail sales figures and consumer sentiment data released on Friday. U.S. retail sales jumped 1.3% in November driven by a strong start to the holiday shopping season. Retail sales in November posted its strongest monthly gain since August when retail sales surged 2.4% due to the government’s Cash for Clunkers program. It will be important to watch December retail sales figures when they are released next month to see if there was sustained consumer activity throughout the holiday shopping season or if November retail sales were just boosted by bargain-hunters capitalizing on early holiday deals. The University of Michigan/Reuters Index showed consumer sentiment increasing to its highest level since September which enforces the notion that consumer strength has reemerged.
Generally positive economic data provided support for stocks over the past week. Although initial weekly unemployment claims reported a surprise increase on Thursday, most of the economic data released in a relatively quiet week have been good. The Commerce Department reported on Thursday that the trade gap was narrowed to $32.9 billion in October due to a rise in exports which benefitted from a weaker dollar. The broader S&P 500 index is on pace to close higher for the week, up a marginal 0.4% to 1,106 in early afternoon trading on Friday.
The Commerce Department reported on Friday that November retail sales increased 1.3% which is the strongest increase in sales since August. Retail sales also posted a 1.9% increase from November of last year which is its first year-over-year gain since August 2008. Auto sales increased 1.6% while retail sales excluding automobile sales rose 1.2% which is its largest gain since January.
The University of Michigan/Reuters Index for consumer sentiment jumped 8.9% in December to a reading of 73.4 from 67.4 in November. This is the highest reading for the index since September. Consumer sentiment regarding the current economy increased to a reading of 79.1from 68.8, which is the highest it has been since April 2008.
Initial unemployment claims posted an unexpected rise this past week by 17,000 to a seasonally-adjusted figure of 474,000. Initial weekly unemployment claims have fallen in the past five consecutive weeks before this week’s increase.
National average mortgage rates increased from the previous week to 4.81% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on December 10th. This was the first weekly increase in average fixed-rates since the beginning of November. Rates last week were at their lowest levels since Freddie Mac started the survey in 1971. This is also the sixth straight week that fixed-rates have averaged lower than 5.0%. In the week ending December 4th, the MBA’s seasonally-adjusted purchase index increased 4.0% from the previous week but was still down 16.3% compared to the same time last year. This was the third consecutive weekly gain for purchase applications which have been unseasonably high due to the extended homebuyer tax credit and record-low mortgage rates.
New home sales rebounded in October after posting its first monthly decline since March in September. Seasonally-adjusted new home sales increased 6.2% from the previous month to an annual rate of 430,000 units. New home sales for the previous three months were also revised higher by 7,000 units. The seasonally-adjusted annual rate of new home sales is at its highest levels since September 2008.
In October, the median new home price increased to $212,200 from an upwardly revised figure of $210,700 in September. Median new home prices are up 0.7% from the previous month but still 0.5% lower than they were this time last year. The median new home price has now recorded ten straight months of year-over-year declines. Competition from lower priced existing homes along with foreclosures and short sales have dragged on new home prices.
In October, new home inventories declined to 240,000 from a September figure of 252,000 on a non-seasonally adjusted basis. Seasonally-adjusted inventory of unsold new homes have declined for 30 straight months to 239,000 units. Seasonally-adjusted months of new home inventory dropped to 6.7% in October which is the lowest it has been since December 2006.
Existing home sales in October jumped due to the anticipated expiration of the original homebuyer tax credit. The seasonally-adjusted annual rate of total existing homes sold surged 10.1% in October to 6.1 million units. Existing single-family home sales increased 9.7% from last month to 5,330,000 units while condo and co-op sales were up 13.2% from last month to 770,000 units. Existing home sales are at their highest annual rate since March 2007.
The median existing home price in October declined to $173,100 from $176,000 in September. This is the fourth straight month that existing home prices have declined and the lowest they have been since April.
Existing home inventory declined for the third straight month in October, falling 3.67% to a preliminary 3,574,000 units from an upwardly revised 3,710,000 units in September. This is the lowest level of existing home inventory on the market since January 2007. Months of existing home inventory dropped significantly due to a jump in sales activity along with the drawdown in units for sale. At the current sales pace, there are 7.0 months of supply of existing homes on the market compared to 8.0 months in September. The market is approaching the 5-6 months supply of inventory level that is considered typical in a healthy housing environment.
Pending home sales rose for the ninth straight month in October, according to the National Association of Realtors. The trade group’s Pending Home Sales Index, which is a forward-looking indicator based on sales contracts in October, increased 3.7% to a reading of 114.1. The index is at its highest levels since March 2006.
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