Wednesday, December 18, 2019
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Consumers save the day again
It was October 2018 and the housing market was saying something had gone very wrong with the U.S. economy.
About two months before the bottom would fall out of the market and investors would endure their worst year since the financial crisis, the housing market was the market’s canary in the coal mine.
Rising rates, declining consumer confidence, and fears over tariffs were among the factors conspiring to put the housing market under stress. And potentially short-circuit the entire economic expansion.
Fast forward 14 months, and the housing market in the U.S. is taking off, putting to bed imminent recession fears and lending further credence to the Fed's case for lowering interest rates three times this year.
On Tuesday, the November data on housing starts and building permits showed permits issued for all new private home construction hit the highest level since May 2007.
Permits issued for new single-family homes totaled the most since August 2007 while permits for new multi-family homes rose to a four-year high. November also marked the fifth straight month that building permits have topped expectations, the series' longest streak since December 2012, according to data from Bespoke Investment Group.
Ian Shepherdson at Pantheon Macroeconomics said on Tuesday that, "these data support our view that investment in residential structures is likely to rise at a double-digit pace in both the fourth and first quarters, at least, thereby offsetting the ongoing meltdown in business investment in commercial and industrial structures."
As Ed Leamer famously argued in his 2007 paper presented at Jackson Hole, the housing market is the economy. And the business cycle is really a consumer cycle.
The 2018-19 mini-cycle we've seen play out is one in which the consumer has held firm while the business sector stalled. The consumer economy, once again, gets the job done.
Tuesday's housing data also follows the homebuilder sentiment report released Monday that showed optimism is at a 20-year high.
Take together these two data points and the performance for homebuilder shares this year — through Tuesday's close, XHB was up over 40% this year and trading just below a record high hit back in early 2018 — and we see yet another pillar of the recessionary thesis that has fallen apart in late 2019.
What to watch today
7:00 a.m. ET: MBA Mortgage Applications, week ended Dec. 13 (3.8% prior)
7:00 a.m. ET: General Mills (GIS) is expected to report adjusted earnings of 88 cents per share on revenue of $4.43 billion
4:00 p.m. ET: Micron (MU) is expected to report adjusted earnings of 47 cents per share on revenue of $5.00 billion
Fiat Chrysler and Peugeot agree $50B merger deal [Yahoo Finance UK]
UK inflation stays at lowest level in three years ahead of Christmas [Yahoo Finance UK]
FedEx earnings, sales miss estimates for 2Q 2020 [Yahoo Finance]