Consumer Confidence for January rose to 103.4 versus estimates of 101.0 and a reading of 102.7 in December. Consumer confidence unexpectedly rose to a six-month high after the economy added more jobs and incomes grew, raising the odds that spending will continue to spur the economy, Bloomberg reported. Wages and salaries rose 4.8% at an annual rate in the third quarter and a 5.7% increase in the previous three months. The percentage of consumer who saw jobs as hard to get fell to 24.7%, the lowest since August 2002, Bloomberg said. Optimism about the current economic situation rose to the highest in 31 months. "Consumer spending has been stellar for the past two quarters, so these levels of consumer optimism are evidently consistent with robust demand," said Stephen Stanley, chief economist at RBS Greenwich Capital.
Existing Home Sales for December fell to 6.69M versus estimates of 6.8M and 6.92M in November. Sales for all of 2004 rose 9.4% to an all-time record. "The housing sector looks very healthy," said David Lereah, chief economist at the National Association of Realtors. "It's down a bit, but the fundamentals are very strong in housing." The median price of an existing home rose 8.1% from the same month last year and the inventory of houses for sale fell to a record low of 3.9 months from 4.3 months, Bloomberg reported. The rate on a benchmark 30-year mortgage averaged 5.84% in 2004, well below historic norms. Increased hiring and rising wages, along with borrowing costs that are still very low by historic standards should keep home buying near last year's record in 2005, economists said.
Durable Goods Orders for December rose .6% versus estimates of a .7% increase and an upwardly revised 1.8% gain in November. Durable Goods Orders Less Transportation for December rose 2.1% versus estimates of a 1.3% increase and an upwardly revised .9% decline in November. Orders rose 8.8% for computers and related products and 17.8% for communications equipment, Bloomberg said. 2004 was the best year in a decade for makers of appliances, autos and other long-lasting items as orders surged 10.9%, Bloomberg reported.
Initial Jobless Claims for last week rose to 325K versus estimates of 332K and 318K the prior week. Continuing Claims were 2840K versus estimates of 2683K and 2698K prior. "The overall picture, when you look at confidence surveys and other reports, is that the labor market is doing better," said MFR Inc. Chief Economist Joshua Shapiro. The volume of help-wanted advertising in major US newspapers in December rose to its highest level in six months, the Conference Board said. "We do have on balance a pretty bright outlook for 2005 for the US economy," Federal Reserve Bank of Kansas City President Hoenig said. About 2 million jobs may be added to the economy this year, Hoenig also said.
Advance 4Q GDP rose 3.1% versus estimates of a 3.5% rise and a 4.0% increase in 3Q. Advance 4Q Personal Consumption rose 4.6% versus estimates of a 4.3% increase and a 5.1% gain in 3Q. Advance 4Q GDP Price Deflator rose 2.0% versus estimates of a 2.1% increase and a 1.4% gain in 3Q. The Employment Cost Index for 4Q rose .7% versus estimates of a .8% gain and a .9% increase in 3Q. For all of last year the US economy grew 4.4%, the most since 1999, Bloomberg said. The trade deficit shaved 1.7 percentage points from growth in the last quarter. The trade gap should detract less this year as a weak US dollar boosts exports, economists said. Consumer spending, inventory building and business spending were among the main contributors to the economy in the fourth quarter, Bloomberg said.
Bottom Line: Overall, last week's economic data were modestly positive. The fact that consumer confidence rose in the face of stock market declines, increased violence in Iraq, domestic terrorism fears and higher energy prices is a big positive. I continue to expect confidence to fall modestly from current levels before setting new cycle highs in the second half of the year. The record low supply of existing homes bodes well for the homebuilding sector and should spur further gains this year as mortgage rates remain very low by historic standards. The 2.1% rise in Durable Goods Orders excluding volatile transportation is a nice rebound from November's decline and remains one of the main engines of economic growth. Initial Jobless Claims were better-than-expected for the second week in a row. I continue to believe the labor market will improve at a moderate pace, thus holding down unit labor costs while allowing unemployment to decline slowly. GDP growth was exceptionally strong for all of 2004, however 4Q growth was disappointing considering the effects of hurricane rebuilding, tax incentives, etc. In my opinion, the Fed should slow their pace of rate hikes as economic growth may fall below 3% this quarter, the dollar stabilizes and measures of inflation decelerate. The 4.6% gain in personal spending, after a 5.1% increase in 3Q, is exceptional and once again proves the death of the US consumer has been greatly exaggerated. I expect the consumer to remain relatively healthy as job prospects improve, energy prices fall from current levels and long-term interest rates remain low. The small decline in the ECRI Weekly Leading Index is also a positive considering the prior week's very strong gain.