KEY DATA: Sales: -10.4%; Prices (Over-Year): 7.9%/ Leading Indicators: +0.5%/ Claims: +22,000

IN A NUTSHELL: “It is too early to say that rising rates are causing the housing market to tank, despite the sharp drop in new home sales.”

WHAT IT MEANS: “If you build it they will come.” Well, maybe, maybe not. Home sales dropped sharply in December as the weakness was spread across most of the nation. There was a huge 41% decline in the Midwest, which may have been weather related. But demand faltered significantly in the South as well. Demand was also off, though modestly in the West. The only region posting a gain was the Northeast, which bounces around like a Super Ball. Sales may have been down and the number of new homes for sale may have risen, but that didn’t stop prices from soaring. There still is a dearth of inventory as most of the increase in houses on the market came from listings of homes that were not yet started. Developers are not so sure if they build it the buyers will indeed come. They are getting higher prices for their product but are unwilling to do much speculative construction.

Look down the road, not only should growth remain decent but we might see an upturn. The Conference Board’s Leading Economic Index jumped in December and it has been accelerating for a while. Even without any business-friendly policies from the new administration, it looks like the economy will expand faster this year.

There was a sharp jump in the number of unemployment claims last week but not to worry.   As I noted last week, the data had reached rock bottom and were not likely to be sustained at those historically low levels. We are pretty much back to what I think will be more typical claims numbers and they still point to a further tightening in the labor market.

MARKETS AND FED POLICY IMPLICATIONS: The new president is churning out executive orders like crazy. Still, those don’t create a lot of change by themselves. The details of the enabling legislation matter the most. Are we really going to spend $15 billion or more for a wall when there are so many other pressing needs? Starting the process of repealing Obamacare may make for a good sound bite, but does anyone know what the replacement will be? Anyone seen the tax cut or infrastructure spending plans yet? All these things may be coming, but until they are here, we continue to operate on hopes and prayers. As an economist, I can only say I have no idea to what extent growth may be affected. Yet investors keep pushing prices up. That only puts even greater pressure on the Republicans to deliver. The need to feed the stock market beast is not a good way to run an economy and you can bet when the Fed meets next week, that will be the major topic of conversation.