After Wednesday’s lackluster trading action, Wall Street seems to have woken up on the right side of the bed for a change on Thursday. The cause? Better-than-expected quarterly results from eBay (NASDAQ:EBAY) and two reports that blew estimates out of the water: Jobless Claims and the Housing Starts/Building Permits report. This month, all three of these economic indicators reached multi-year records, so we’re seeing a notable shift in sentiment from Wall Street and the media alike.
In anticipation of the next shortened week (remember, Wall Street will be closed next Monday, Martin Luther King Jr. Day), we received a barrage of economic reports in the past few days. In today’s blog I highlight the two big ones from today and get us caught up on five others that were released earlier this week.
The American Consumer
In December, retail sales rose 0.5%, outpacing November’s 0.4% gain. The sales were helped by another good month for auto purchases, as Americans continued to replace older vehicles and ones damaged by Superstorm Sandy. Consumers also spent more on furniture, clothing, sporting goods and meals out. Sales excluding autos, a less-volatile gauge of consumer spending, rose 0.3% in December after falling in November. The increase wasn’t as large as some of the jumps we saw over the summer, but the gains were enough to ease fears of a spending slowdown after sales dropped in October, and they signaled that the economy continued to grow at a modest pace in the final quarter of 2012.
In December, consumer prices were flat, held back by a drop in gasoline prices that balanced out modest increases in food and shelter. Overall for 2012, the Consumer Price Index was up 1.7%, tamer than in 2011, when prices rose 3%. Both food and gas can be volatile, so economists often prefer to strip out those categories when monitoring inflation. This measure, called core CPI was up 1.9% in 2012, also showing a deceleration from a 2.2% increase in 2011. The modest increases in CPI points to a lack of inflation in the last year, giving the Federal Reserve more room to stay on its 0% interest rate path. While businesses and consumers alike are contending with slightly higher prices, we still haven’t hit significant inflation.
The Private Sector
Last month, the Producer Price Index (PPI) dropped again by 0.2%. This was the third straight month that the PPI declined, as food prices dropped by the most in more than 18 months while a measure of underlying prices pointed to minimal inflationary pressures in the economy. Economists had expected for PPI to drop by 0.1% last month. It was largely food and energy prices last month that brought the index down as food declined 0.9% and energy slid 0.3%. We’ll continue to keep a close eye on this index, as I expect that inflation will heat up in coming months as energy prices go up in the spring.
In November, business inventories grew by 0.3% to a record $1.62 trillion after rising by the same margin in October. This was in line with economists’ expectations. Auto inventories rose 0.5% after a 0.8% gain in October, but if you exclude auto stockpiles, retail inventories were up only 0.2%. Right now, business inventories are being outpaced by sales, which rose 1% in November, and businesses have a 1.28 month supply on their hands. The data suggests that some business owners remain cautious, but we should see better numbers here now that the fiscal cliff has been resolved.
In December, industrial output rose 0.3% after a 1.0% gain in November, in line with economists’ expectations. Manufacturing increased 0.8% in December after advancing 1.3% in the previous month. While factory activity has cooled somewhat in recent months, the industrial production report suggests that the sector is seeing increased demand and manufacturing production—which makes up 75% of all production—is rebounding strongly after disruptions from Superstorm Sandy.
The Jobs Market
This week, initial jobless claims plunged 37,000 to 335,000—the lowest level in five years! This came in far below economists’ estimates of an annual rate of 375,000. Meanwhile, the four-week moving average dropped from 366,000 to 359,250. This was surprisingly good news, and it certainly helped boost confidence on Wall Street on Thursday. One thing to keep to mind about the jobless claims report is that while it is timely, the data is prone to jump around quite a bit. So I’ll want to see a sustained drop in the four-week moving average before making any sweeping conclusions about the labor market.
The Housing Recovery
The Commerce Department announced that December housing starts soared 12.1% to an annual rate of 954,000. This pace blew past the 880,000 consensus estimate and also represents a four-year high. In December, construction really picked up on multi-family units, surging 20.3% compared with November’s pace.
In December, building permits edged up to 903,000, a four and a half year high. This also beat out the 880,000 consensus estimate. The gain was driven by a 1.8% rise in permits for single-family homes, while permits for multi-family units retreated 2.1%. It’s official: 2012 was the best year for the housing market since the housing bust. Housing starts have jumped 28% in the past year, and building permits have advanced 30% over the same period. However, there’s still plenty left to be done: 2012 housing starts are still at about half the pre-bust pace. So I’m hoping that we see a continued upward trend through 2013 because there’s room for improvement.