This week, the markets remained fixated on the fiscal cliff. Unfortunately, there was little economic news to keep minds off of the potentially painful situation.
Data on the real estate sector, the key set of economic indicators at the moment, remained bullish this week. Home price gains of 5% or more for all of 2012 are now pretty much in the bag.
Initial unemployment claims made another surprising dip, but I am always a little wary of holiday data that gets skewed by processing delays and vacations.
The Chicago PMI data for manufacturing also came in surprisingly strong, which bodes well for next week’s national number and the manufacturing economy in general.
Holiday retail sales data was inconclusive and conflicting, though it looks like we will have to wait another week to know for sure. My best guess is that sales growth over the holiday period won’t differ much from last year’s 3% or so growth rate. However, there are other data that suggest things may have been softer. I think they are wrong, but only time will tell.
Some Fiscal Cliff Effects Could Show Up Late Next Week
There is little more I can add about the fiscal cliff, but some of the effects could show up as early as next week. New payroll tax withholdings and the 2% increase in Social Security taxes could show up on next Friday’s payroll checks. In some states the following week, unemployment checks could go missing in action for those who have already been unemployed for more than 26 weeks.
I have avoided describing the blow-by-blow impact on individual groups, thinking that some last-minute deal would be worked out. I have, however, talked about overall impact by category, and reiterated some of those points in this week’s video. For more information, here is a link to NBC News that summarizes the impact by income category and provides a more personalized look at going over the cliff. I really hope that by the time you are reading this article, we won’t all need this link.
Home Prices Continue to Rise
I was very pleased with the Case Shiller 20 City Home Price Index reported on Wednesday. The year-over-year data (which is calculated as a three-month moving average) was up 4.3% from October to October. This now puts this metric only slightly behind the 4.7% calculated by the FHFA, and it’s closing in on the 5.4% growth rate reported by CoreLogic(CLGX) for the same period.
The fact that all three metrics are moving upward by roughly similar amounts suggests that the recent price increases are not flukes. The methodology and universe for these metrics are slightly different, so we do see some divergence from time to time.
The home price growth also surprised me in that it was well above the 3.6% growth I forecast just last week. The regional variances were also smaller than I had expected, with 18 of the 20 cities reporting year-over-year increases. The usual bears focused on a 0.1% non-seasonally adjusted decline from September to October, which was far smaller than I had been anticipating. Seasonally adjusted month-to-month prices grew 0.7% (prices usually go down in the fall), not too shabby at all. Given that prices were still declining last November and December (2011), it appears that with no price increases at all in the last two months of 2012, prices will increase just over 5% for the full year.