Leftovers This Week: Housing Numbers and Consumer Spending Fill the Plate

Nov 26, 2018
Thanksgiving Leftover Sandwich

More Housing Numbers & Consumer Spending to Nibble Over

Returning from the Thanksgiving holiday investors will be greeted with a couple housing releases that will give us more information regarding the state of the housing market: is it spiraling lower or is it rebounding from a third quarter lull? Expectations call for a modest rebound and, truthfully, when you look at some of the other reports this week that expected rebound appears  justified. October Personal Income & Spending numbers are due Thursday and they should show continued strength in consumer spending with another decent month of income gains. November Consumer Confidence is expected to tick lower but remain solid despite the bloodbath in stocks. Thus, the health and confidence of the consumer is expected to remain strong and that paints a solid picture for 4th quarter GDP.


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


Top Events of the Week Top 5 Events for the Week

NOV 26 - 30,  2018

1.  October New & Pending Home Sales — Wed./Thurs.
2.  2nd Estimate of 3rd Quarter GDP — Wednesday
3.  October Personal Income & Spending — Thursday
4.  October Advance Goods Trade Balance — Wednesday 
5.  November Consumer Confidence — Wednesday
 

 

1.  October New & Pending Home Sales — Wednesday / Thursday

Housing-related releases this year have generally been so-so but lately the numbers have moved from mediocre to something a little more concerning. The combination of modest wage gains, home price appreciation, low inventories, and higher interest rates have all conspired to reduce housing affordability and that has fed back to reduced activity. That being said new home sales for October are expected to rebound 4.0% versus the disappointing –5.5% decrease in September.  Meanwhile, pending home sales are based on contract signings representing something of  a leading indicator to new and existing home sales  which are based on closings that occur a month or two later. Sales for October are expected to increase 0.5% matching the gain in September.  In summary, the two series are expected to reflect a bounce from a soft September but without a noticeable leg higher in momentum either.

 

New and Existing Home Sales

 

2.  Second Estimate of 3rd Quarter GDP — Wednesday

The second estimate of third quarter GDP will be released Wednesday with the Bloomberg consensus calling for a 3.6% print versus 3.5% in the first estimate.  As was the case in the first estimate the expected growth will be driven by a solid showing by the consumer with personal consumption at 3.7%. The quarterly core PCE annualized inflation reading is expected to remain docile at 1.6%.  As for the current quarter some slowing is expected with the Bloomberg consensus at 2.6% and the Atlanta Fed’s GDPNow model calling for a 2.5% annualized rate.

 

3.  October Personal Income and Spending — Thursday

Thursday’s release of the Personal Income and Spending numbers for October will give us a look at the health of the critical consumer as we head into the crucial holiday-selling season. Personal income is expected to have rise 0.4% beating the 0.2% rate in September. Personal spending is expected to also rise by 0.4% matching the 0.4% September gain. Real spending—adjusted for inflation— is expected to increase 0.2%, just off September’s 0.3% gain and the 0.4% rate in August.   The Core PCE (YoY) inflation measure is expected to tick down to 1.9% versus 2.0% in September breaking a four month run at that rate.   In all, expectations are for another decent report but with a weakening trend apparent in the inflation-adjusted spending numbers. That’s something to watch in coming months.

 

4.  October Advance Goods Trade Balance — Wednesday

With trade war rhetoric now firmly focused on China, the Advance Goods Trade Balance report has become equal parts political and economic.  The goods trade deficit was -$67.6 billion in October 2017 and is expected to be –$77.0 billion in October 2018. The deficit began the quarter at  -$76.3 billion, so the expected print of -$77.0 billion indicates the goods trade sector will be a slight negative for fourth quarter GDP, despite the addition of tariffs to the picture.

 

5.  Conference Board’s Consumer Confidence — Tuesday

The Conference Board’s Consumer Confidence reading due tomorrow will be interesting as it will coincide with the period of heavy stock selling and recent slowing in housing. The index is expected to see a decline from 137.9 to 135.8 but still a solid reading to be sure. Part of the resilience in the expected confidence reading could be that the average consumer is lightly, if at all, invested in stocks and/or they haven’t looked at a recent statement balance. Whatever the resilience it is comforting to see that to date, the consumer remains fairly upbeat about their situation and that should continue to result in solid consume spending numbers.

 

 

 


Technicals Investment Yield Ranges Over Last Year

 

US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg

 

 

 


 

Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

 

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