ECONOMIC NEWS: Strong late 2017 consumer spending improves outlook for new year

Publish date:
Social count:

As 2017 neared an end, sales of new and existing homes were strong, consumer spending was up, inflation remained low and consumer confidence, though it slipped a bit, was still at a high level.

All of these trends pointed toward a good start in 2018 for the U.S. economy.

The Census Bureau said during the week before Christmas that sales of new single-family homes rose 17.5 percent in November, to a seasonally adjusted annual rate of 733,000, from a revised October rate of 624,000. Sales were 27 percent higher than the November 2016 estimate of 579,000.

The department also said the median sales price of new houses that were sold in November was $318,700 and the average price was $377,100.

In a separate release, the agency said housing starts rose 3.3 percent in November, to a seasonally adjusted annual rate of 1,297,000. Single-family housing starts in November were at a rate of 930,000, 5.3 percent above the revised October figure of 883,000.

“These are the exact kinds of new-home sales numbers the market has been desperate for the past few years,” Aaron Terrazas, a senior economist at Zillow, said in a statement. “New-home sales data in general are pretty volatile — data from the previous three months were all revised downward from initial reports — but if the numbers hold in coming months and if builders can keep up this pace, it bodes very well for 2018.”

“The biggest jump in sales came in the $300,000-$399,000 price range, a relatively affordable sweet spot for many buyers.” Terrazas added.

Two days earlier, the National Association of Realtors said existing-home sales rose in November for the third straight month and were their strongest in nearly 11 years.

Home resales rose 5.6 percent, to a seasonally adjusted annual rate of 5.81 million in November, from an upwardly revised 5.5 million in October. Sales in all regions except the West rose significantly and sales through November were 3.8 percent higher than a year earlier and were at their strongest since December of 2006.

“Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end,” Lawrence Yun, chief economist of the NAR, said in a statement. “As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month. The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”

Yun did add a note of caution about the new year.

“The anticipated rise in mortgage rates [in 2018] could further cut into affordability if these staggeringly low supply levels persist,” he said. “Price appreciation is too fast in a lot of markets right now. The increase in homebuilder optimism must translate to significantly more new construction in 2018 to help ease these acute inventory shortages.”

On Tuesday, IHS Markit said its seasonally adjusted final US Manufacturing Purchasing Managers Index was at 55.1 in December, up from 53.9 in November. It was the highest reading since March of 2015 and signaled “a solid improvement in the health of the sector. December data also rounded off the strongest quarterly performance since the start of 2015,” IHS Markit said in a statement.

“Output at manufacturers expanded at a steep pace in December, with growth reaching an 11-month high,” IHS Markit said.

“U.S. manufacturers ended 2017 on a high. Output growth accelerated to its fastest since the start of the year on the back of a marked upswing in demand as the year came to a close,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

“Prospects for the upturn also look good,” Williamson added. “With business optimism about the year ahead running at its highest for two years in the closing months of 2017, companies are clearly expecting to be busier in 2018. The upbeat mood is underscored by an increased appetite to hire new staff, with the survey indicating that factory payroll numbers are rising at a rate not seen for over three years.”

Separately, consumer spending rose by 0.6 percent, or $87.1 billion, in November, the Commerce Department said, and personal income rose by $54 billion, or 0.3 percent.

Inflation, as measured by the Personal Consumption Expenditures Index, was up 1.8 percent in November from the same month last year, but MarketWatch said the core rate of inflation, which excludes food and energy prices, was up just 1.5 percent from November of 2016. This “core” rate is the inflation gauge the Federal Reserve prefers to use, The Fed’s inflation target is 2 percent on the PCE index.

The government said the PCE price index rose 0.2 percent from October and the “core” rate rose 0.1 percent.

The two main gauges of consumer confidence dropped in December, but both were still at levels that suggest confidence remains high.

The Conference Board’s Consumer Confidence Index fell to 122.1 from 128.6 the previous month, which was a 17-year high.

“The decline in confidence was fueled by a somewhat less optimistic outlook for business and job prospects in the coming months,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement. “Consumers’ assessment of current conditions, however, improved moderately. Despite the decline in confidence, consumers’ expectations remain at historically strong levels, suggesting economic growth will continue well into 2018.”

The Conference Board said optimism about the short term declined sharply in December. The percentage of consumers who believe business conditions will improve during the next six months declined from 23.1 percent to 20.2 percent; those who expect conditions to worsen increased from 6.7 percent to 9.2 percent.

The Conference Board also said the job-market outlook was less upbeat than in November. Those who expect more jobs in the months ahead decreased from 21.3 percent to 18.4 percent; those who anticipate fewer jobs rose from 12.1 percent to 16.3 percent.

The University of Michigan’s Index of Consumer Sentiment fell to 95.9 in December from 98.5 the previous month.

“Consumer confidence continued to slowly sink in December, with most of the decline among lower-income households,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement.

“The extent of the decline was minor, with the December figure just below the average for 2017 (95.9 versus 96.8). Indeed, the average in 2017 was the highest since 2000, and only during the long expansions of the 1960s and 1990s was confidence significantly higher,” Curtin added. “The recent strength was due to the second-highest assessments of current economic conditions since 2000. This strength was offset by a slight increase in uncertainty about future economic prospects. Tax reform was spontaneously mentioned by 29 percent of all respondents, with nearly an equal split between positive and negative impacts on economic prospects.”

The unemployment data for December, due out Friday, will be the top report of the first month of 2018.

Today, motor vehicle sales for December and the Institute for Supply Management’s Manufacturing Index for the same month will be released.


MRAA welcomes new partner member

Marina and marine management software provider DockMaster has become the newest partner member of the Marine Retailers Association of the Americas.

Caterpillar to close two facilities

Caterpillar Inc. will close two facilities in Texas and Panama and is considering shutting its engine manufacturing plant in Illinois as part of a strategy to boost profitability and better handle business cycles, according to Reuters.

Brunswick executive honored by Savoy magazine

Danielle Brown, vice president and chief information officer for Brunswick Corp., was recently honored among the "Most Influential Blacks in Corporate America" as chosen by Savoy Magazine, a leading African-American lifestyle publication.