Housing builds best showing since 2008
The housing market showed significant resilience as housing starts surged in December for the strongest reading since 2008. A recovery in the housing sector is considered key to restoring the economy to full health. With inflation still muted, consumer spending gained ground in December. For the week ended January 18, 2013, the S&P 500 Index was up 0.9% to 1,486. The yield on the 10-year U.S. Treasury note was down 2 basis points to 1.87%.
Housing starts jumped in December
Housing starts were up 12.1% over the previous month—the best showing since June 2008. Single-family home starts were up 8% while multifamily starts climbed more than 20%. Compared to the third quarter, annualized housing starts in the fourth quarter were 82% higher, for the strongest jump since the 1980s.
During 2012, builders started work on 708,000 homes. That’s an increase of 28.1% over 2011 and the most starts since 2008, shortly after the housing collapse. Nevertheless, housing starts are still below the historic annual average of 1.5 million.
Beige Book shows economy continuing to strengthen
All 12 districts of the Federal Reserve reported growth from mid-November to early January, according to the January Beige Book report. Consumer spending was higher in every region partially due to holiday sales, which were somewhat higher than in 2011. Tourism and transportation also rose across much of the United States. Auto sales were strong despite consumers’ lingering caution about making big purchases. Wages and employment were more or less unchanged.
Price inflation remains muted
Producer prices dropped 0.2% in December, their third straight monthly decline, as prices for finished consumer foods and energy goods fell 0.9% and 0.3%, respectively. Excluding food and energy, producer prices were up 0.1% as prices in earlier stages of production edged higher.
Meanwhile, consumer prices held steady in December after November’s 0.3% decline. Excluding food and energy, core prices for finished goods were up only 0.1%. The price index was up only 1.7% in 2012, the third-slowest rise in 10 years.
Consumer spending up 0.5%
Retail sales rose higher than expected in December, suggesting greater momentum in consumer spending as the year ended. Sales were up 0.5% after an upwardly revised 0.4% increase in November. Combined sales growth for November and December jumped to 4.4%, although it was still lower than the 6.9% reported for the same period in 2010 and 2011.
Manufacturers build inventories, increase production
Business inventories inched up 0.3% in November as auto inventories outpaced overall inventories for the 11th straight month. Business sales were up 1% after a 0.3% decline in October. Excluding autos, retail inventories were up a mere 0.2%.
Industrial production gained 0.3% in December, with manufacturing output up 0.8%. While manufacturing in December was higher than anticipated, it remained little changed for the fourth quarter, which in turn was little changed from the third. Utility output fell 4.8% as temperatures moderated. Auto production was up 2.6% in December, less than half the upwardly revised 5.8% increase the previous month.
The economic week ahead
Next week, reports are due on existing-home sales (Tuesday), leading indicators from the Conference Board (Thursday), and new-home sales (Friday).
Source: The Vanguard Group Inc.