INDICATOR: April Existing Home Sales, Leading Indicators and Weekly Jobless Claims
KEY DATA: Home Sales: +1.3%; Leading Indicators: +0.4%; Claims: 326,000 (up 28,000)
IN A NUTSHELL: "Warmer April weather has not been the tonic that realtors hoped for but it still looks like growth will accelerate going forward."
WHAT IT MEANS: The housing market has hit quite a lull. The winter was the excuse for the disappointing activity during the first quarter but sales have yet to really accelerate. Existing home sales rose a touch in April, but nowhere near what was hoped for. Over they year, they are down nearly 7% with every region posting a decline. That seems to point to a broad based sluggishness that may not be simply the result of an unhappy Mother Nature. Condo demand is holding up but single-family sales are wandering along at a less than stellar pace. Still, we need to be a little cautious. Existing home sales are actual closings and are representative of activity about two months prior to the month of the sale. With the difficulty in getting mortgages these days, it could actually be longer. Thus, we are still looking at purchase activity from the first quarter. We need to wait until June before we have a really good idea about the condition of the existing home market. New home sales will be released tomorrow and they represent more current contract activity.
Looking forward, there is still hope that growth will improve. The Conference Board’s Leading Economic Index rose sharply again in April, after two large gains in February and March. If this index has any forecasting ability, it is telling us that the first quarter slump is well behind us. And that idea is being reinforced by the labor market data. Yes, jobless claims jumped last week but they had been at a near record low the prior week. The less-volatile four-week moving average moved down and is at a level that implies continued declines in the unemployment rate.
MARKETS AND FED POLICY IMPLICATIONS: Housing is a real question mark that is raising concerns at the Fed and with investors. My suggestion is wait a little longer before starting your eulogy. We need to start seeing the non-winter driven numbers and for existing homes, that is still a couple of months away. For new homes, tomorrow’s numbers should provide better insight into whether the sector is starting to rebound. Without solid housing activity, it will be hard, but not impossible, to get to strong growth. But sustaining that growth without a decent housing sector would be difficult. Nevertheless, we still need to keep our eyes on the prize and that is income growth. I never like to see rising claims numbers, especially when the jump is greater than expected. But when analysts start saying that 326,000 is high (it is not), that is a sign that the labor market has firmed. And while a small increase in the Leading Economic Index might be discounted, the large rise over the past three months cannot be dismissed, so expect economic growth to start ramping up.