Last week saw plenty of evidence that U.S. residential developers and builders are getting very optimistic. Housing Starts shot up 11.3% in December, reaching a 1.226 million unit annual rate. This month's bump all came from the multifamily side but single family starts remain positive, up 3.9% the past year. Single family building permits are up 10.7% over a year ago, at their highest level since 2007, showing a continuing uptrend.
Multifamily building permits are down 15.1% from a year ago, evidence of the shift to single family starts after multifamily construction peaked in 2015.
The optimism reflected in the starts and permits reports got further support from the National Association of Home Builders (NAHB). The NAHB builders confidence index hit an impressive 67 in January, just below its December reading, the highest in 11 years. Analysts say both builders and prospective home buyers are encouraged by the pickup in jobs and wage growth and by optimism (at least for now) that more market-friendly policies will be coming out of Washington. December's University of Michigan Consumer Sentiment report saw its Current Economic Conditions index at the highest point since 2004. Nice to see things looking up.
Review of Last Week
At noon on Friday Donald Trump took the oath of office as the 45th President of our country and Wall Street held its own inaugural celebration. Stocks ended the day near session highs, with the Dow, S&P 500 and the Nasdaq all ahead. Equities had been trading in a fairly narrow range, so all three major indexes finished the week down a tad but they remain in positive territory for the year. Investor optimism stems from the President's campaign promises to lower taxes, reduce regulation and boost infrastructure spending, all good for business, and especially for smaller companies, who create around two thirds of the nation's new jobs.
The week's economic reports looked encouraging. Industrial Production was up more than expected in December and factory capacity grew to 75.5%. The Philadelphia Fed Index increased from December to January, showing optimism among East Coast manufacturers. The Consumer Price Index (CPI) also gained in December and is now 2.1% over a year ago. Federal Reserve chair Janet Yellen indicated on Thursday that she wasn't worried about the inflation surge, signaling she saw no reason to quickly raise interest rates. More positive news came with drops in both Initial and Continuing Unemployment Claims.
The week ended with the Dow down 0.3%, to 19827; the S&P 500 down 0.1%, to 2271; and the Nasdaq down 0.3%, to 5555.
U.S. Treasuries enjoyed small gains on Friday, but many bonds ended the week lower. The 30YR FNMA 4.0% bond we watch finished the week down .29, at $104.77. In Freddie Mac's Primary Mortgage Market Survey for the week ending January 19, national average 30-year fixed mortgage rates dropped for the third week in a row despite the bump in bond yields after the CPI showed hotter inflation.
This Week’s Forecast
The December reports for Existing Home Sales and New Home Sales are both expected to be down for the month. But sales of existing homes should still be above 5.5 million and new homes just under 600,000. The GDP-Advanced Q4 reading of the economy is forecast to show last year closing at a still slow 2.2% growth rate.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of January 23rd – January 27th
Jan 24 10:00 Existing Home Sales
Jan 25 10:30 Crude Inventories
Jan 26 08:30 Initial Unemployment Claims
Jan 26 08:30 Continuing Unemployment Claims
Jan 26 10:00 Leading Economic Indicators
Jan 26 10:00 New Home Sales
Jan 27 08:30 GDP - Advanced
Jan 27 08:30 Durable Goods Orders
Jan 27 10:00 U. of Michigan Consumer Sentiment
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
A few more economists think the Fed may hike before June, but the majority still sees rates remaining where they are.
Note: In the lower chart, a 5% probability of change is a 95% certainty the rate will stay the same.
Current Fed Funds Rate: 0.5%-0.75%.
After FOMC meeting on:
Feb 1 0.5%-0.75%
Mar 15 0.5%-0.75%
May 3 0.5%-0.75%
Probability of change from current policy:
After FOMC meeting on:
Feb 1 5%
Mar 15 22%
May 3 40%
Where are interest rates headed?
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