February Consumer Confidence, Philadelphia Fed Non-Manufacturing Survey and December Case-Shiller Home Prices
Economics in a nutshell: “Housing sales may be going nowhere, but with prices rising and confidence soaring, the conditions are there for a better market in the months ahead.”
INDICATOR: February Consumer Confidence, Philadelphia Fed Non-Manufacturing Survey and December Case-Shiller Home Prices
KEY DATA: Confidence: +9.8 points; Philadelphia Fed (Non-Manufacturing): +38.1 points; Case-Shiller National Prices (Year-over-Year): up 4.6%
IN A NUTSHELL: "Housing sales may be going nowhere, but with prices rising and confidence soaring, the conditions are there for a better market in the months ahead."
WHAT IT MEANS: The weather outside may be frightful and gasoline prices may be on the rise, but that hasn't stopped people from becoming more optimistic. The Conference Board's Consumer Confidence Index surged in February. There were hints from other surveys that people were becoming somewhat dismayed, possibly because of the increasing costs at the pump. However, respondents indicated that business conditions were getting better and jobs were becoming more plentiful. They also have great hopes for jobs and business activity in the months ahead. Importantly, more even think their incomes will rise. That holds out hope that spending, which has been a lot better recently, will continue to be strong.
One place we hope to see more spending is for services. This is the big-dog in the economy, making up about 45% of GDP. If the Philadelphia Federal Reserve's results are any indication of what is happening, it appears that people are taking the savings in gasoline and pouring it into services. The business activity index surged in February, to say the least. This is a relatively new index and it is volatile, but the size of the increase indicates that conditions are clearly getting better and expectations remain as high as possible.
Meanwhile, back at the ranch, or ranch house, prices rose solidly in 2014. The S&P/Case-Shiller Home Price Index was up at a decent pace and it looks like the deceleration in prices that had occurred for most of the year is largely over. That is important as the sector is suffering from a shortage of inventory, which may be due, at least in part, to a lack of equity. The better the price gains, the more homes that can be brought to market.
MARKETS AND FED POLICY IMPLICATIONS: Fed Chair Yellen is speaking today so the markets will be reading her words and parsing her answers to the many weird questions she is forced to handle. Politics never is put aside when the Fed Chair presents testimony to Congress. Today's numbers would not change perceptions at the Fed. It is ultimately about inflation and much of that has to do with the labor markets. But Chair Yellen also wanted to warn the markets that the FOMC will soon move to a meeting-to-meeting decision making process. The Fed wants the flexibility to change rates if and when they need to or want to. Yellen doesn't want to get locked into a pattern, as was the case with her last two predecessors. Of course Mr. Bernanke always said that a move one meeting didn't imply that there would be a move at the next, but he and Mr. Greenspan always behaved that way. Regardless, Chair Yellen didn't give any hints that the Fed was ready or willing to raise rates soon, though she didn't rule anything out. She reminded everyone that the Fed target relates to top line inflation, not core, and with gasoline prices jumping, the trend in the inflation indices should be up.
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