Economic Update 02/25/2013

HOME SALES RISE, HOUSING STARTS FALL

January brought a 0.4% improvement in existing home sales, even as the inventory of properties for sale hit a 93-month low. The National Association of Realtors reported a 25% year-over-year decline in existing home inventory, which hasn’t been seen since December 1999. The median sales price was $173,600 last month, up 12.9% from a year ago. Turning to new construction, housing starts dropped 8.5% in January after a 15.7% gain in December, but new home permits increased 1.8%.

NO CHANGE IN CPI, BUT PRODUCER PRICES ADVANCE

The Consumer Price Index was flat for a second straight month in January, with annualized inflation at just 1.6%. Core CPI (minus food and energy prices) advanced 0.3%, however – the biggest monthly gain since May 2011. The Producer Price Index rose 0.2% in January, with overall yearly wholesale inflation at 1.4%.

SEQUESTRATION SEEMS IMMINENT

On March 1, $85 billion in federal budget cuts are set to occur – and with Congress on recess last week, not much more than talk emerged about delaying them further. Friday, President Obama said he did not believe that the cuts were “inevitable” and commented that “this is not a smart way for us to reduce the deficit”. At the end of last week, no bipartisan effort to reschedule them was underway. 

STOCKS STAGE FIRST WEEKLY RETREAT OF 2013

Pronounced volatility returned to Wall Street last week due to earnings surprises and the January Federal Reserve policy meeting minutes, which raised concerns over the longevity of QE3. How did the key indices do last week? The numbers: Dow, +0.13% to 14,000.57; S&P 500, -0.28% to 1,515.60; NASDAQ, -0.95% to 3,161.82. 

THIS WEEK: Earnings reports from Lowe’s and Hertz arrive Monday. Tuesday, January new home sales figures, a new Conference Board consumer confidence poll and the latest Case-Shiller Home Price Index appear, and Fed chairman Ben Bernanke begins two days of testimony in Congress; Macy’s, Home Depot, Saks, AutoZone, Priceline and TiVo announce earnings. Reports on January pending home sales and durable goods orders are out Wednesday plus earnings from Target, Monster, Limited Brands, Dollar Tree, TJX, Groupon and JCPenney. Thursday offers quarterly results from Best Buy, Gap, Sears, Kohl’s and Barnes & Noble and the second estimate of Q4 GDP. Friday is March 1: sequester cuts may occur, the final February consumer sentiment index from the University of Michigan arrives, February’s ISM manufacturing index and reports on January consumer spending and vehicle sales appear, and Ben Bernanke speaks at the San Francisco Fed.