By Carlos Guillen
Perhaps a bit encouraging today was that increases in the cost of living appeared to be under control this past month. According to the Department of Labor, the Consumer Price Index (CPI-U) in January was flat month-over-month; this compares with the Street's consensus estimate calling for a 0.1 percent rise. Excluding food and energy contributions to the price index, core CPI increased month-over-month by 0.3 percent, while economists' average forecast called for a 0.2 percent rise. The fact that total inflation is still rather muted is certainly encouraging for consumers as they are continuing to support economic growth. However, this data is reflective of things a month ago, and gasoline prices have been increasing for the past several weeks. In fact, gasoline prices are really soaring again, and this may work against the purchasing power of ordinary Americans. According to the AAA's Fuel Gauge Report, the national average pump price hit $3.77 for a gallon of unleaded gasoline yesterday, up a sharp 47 cents per gallon from just a month ago.
Perhaps the most concerning bit of economic data today was that manufacturing in the Philadelphia region contracted for a second consecutive month. According to the Federal Reserve Bank of Philadelphia, its diffusion index of current activity February result landed at -12.5, lower than the Street's consensus estimate of 1.5, decreasing from the -5.8 reached in January. Given that a level below zero indicates an economic contraction, this represents two months of contraction, after December's expansion in the region covering eastern Pennsylvania, southern New Jersey, and Delaware. It is interesting to note, however, that this result was very different from what we saw earlier last week in manufacturing data from the New York region, which landed at 10.0, higher than the Street's consensus estimate of 0.0, increasing from the -7.8 reached in January. So in essence the results are mixed at the moment for the overall economy.
Another report showed that the index of leading indicators improved and appears to be maintaining a favorable short term uptrend, signaling that overall stronger housing and job markets are helping the U.S. economy make more progress in the first half of 2013. According to the Conference Board, its Leading Economic Index (NYSEMKT:LEI) during January increased month-over-month by 0.2 percent to 94.1; however, the result was worse than the Street's consensus estimate calling for a 0.3 percent month-over-month rise.
Somewhat favorable was that of the ten components that make up the leading indicators, 6 were positive in January compared to 5 positive components in December. The positive contributors were the interest rate spread, stock prices, the Leading Credit Index, average weekly initial claims for unemployment insurance, building permits, and manufacturers' new orders for consumer goods and materials. Despite the miss on estimates, the slow but still up-trending results are indicating that the recovery is still continuing; moreover, given that housing and hiring usually pick up in March, it is very possible that there may be more forces lifting the economy further.
Existing Home Sales: Eye on Supply
By David Urani
Yesterday we were given a housing starts report that was stronger than it looked on the surface, although not great. Today we got another piece of housing data that was deceptively strong. The headline for January existing home sales was so-so, with sales up 0.4% month to month to 4.92 million annually, or essentially flat, while the consensus was looking for 4.90 million. Sales remain just slightly below the four-year high set in November. The same goes for single-family units which were up just 0.2%.
But where I remain really impressed with respect to the existing home market is in inventory. Supply of homes was down for a fifth month in a row, by 4.9%, to $1.74 million units. That is the lowest level of inventory since December 1999, and in terms of months' supply we're standing at 4.2 months, the lowest since April 2005.
So, steady demand near a multi-year high combined with a further dwindling of inventory is a bullish signal. In fact, the NAR went on to reiterate that shortages of supply in some areas are holding back sales. And of course, with there being a shrinking supply of existing homes to buy, home builders are in a good position to take advantage. Meanwhile, it should continue to put upward pressure on prices.