Category Archives: Case-Shiller Home Prices

September Conference Board Consumer Confidence and July Case-Shiller Housing Prices

KEY DATA: Confidence: -7.4 points/Housing Prices (National): +0.5%; Year-over-Year: +5.6%

IN A NUTSHELL:   “Whether the sharp decline in consumer confidence is the result of rising international concerns or a slowing economy makes a big difference, so it is premature to start worrying.”

WHAT IT MEANS:  With the September jobs report on the horizon, we are looking for signs that the economy could be either stronger or weaker than expected.  Today’s reports were not particularly great, though they may not be as worrisome as the headlines imply.  First, there was a huge drop in the Conference Board’s Consumer Confidence Index.  That was a shocker as the August reading was the highest in nearly seven years.  The details were not particularly pretty either, as current conditions were down, though at only half the pace that future expectations dropped.  It is that difference that raises real questions about what is going on.  A cratering in confidence usually is caused by an event but there has been no major negative economic crisis.  Indeed, with gasoline costs falling, the logic would have been for consumers to feel better.  However, the emergence of ISIS/ISIL and the need to get militarily involved again in the Middle East was a very negative political event and that could be behind the drop.  If that was the driving force, the impact on spending should be limited as political issues usually don’t change consumption patterns significantly for any extended period.

As for housing, the S&P/Case-Shiller national index of home values rose but the pace of gains is slowing.  The year-over-year rise was the smallest in a couple of years.  Also, the 20-City Index of large metropolitan areas declined over the month.  Only three areas, Las Vegas, Miami and San Francisco, rose by double-digits since July 2013.  The deceleration is not bad as the last thing we want is for bubbles to start forming again. Prices need to continue rising moderately so homeowners’ equity can increase and the normal churn in the market can return.

Two other reports released today point to modest September growth.  The Paychex-IHL Small Business Jobs Index showed slowing small business hiring while the ISM-Chicago manufacturing index moderated.  So far, the September numbers have not been anything stellar.

MARKETS AND FED POLICY IMPLICATIONS: I will wait on the confidence issue as the Middle East worries may be dominating.  But any slowdown in spending would not be helpful as we need job growth to be strong and the unemployment rate to continue falling.  Of course, we will know more on Friday, but until then, we can only speculate, which is the most fun.  As for investors, the confidence drop has to hurt and given the unrest in Hong Kong, it is hard to see how any rational investor could feel great today.  Note, I said rational.  Remember, markets may be efficient by they don’t have to be rational.

May Case-Shiller Home Prices and July Paychex Small Business Hiring

KEY DATA: Case Shiller (Monthly): -0.3%; Annual: +9.3%/Paychex: up 0.3%

IN A NUTSHELL:  “Small businesses are hiring but the improving labor market conditions are not translating into booming home sales or prices.”

WHAT IT MEANS:  Another day, another sign that economic conditions are improving but not across the board.  Today’s fun numbers spoke about housing prices and small business hiring.  In May, home prices took a step backward, according to the S&P/Case-Shiller home price measure.  The seasonally adjusted 20-city index fell between April and May with fourteen of the twenty cities posting declines.  In April, only four cities saw home prices fade.  Looking over the year, prices are still up strongly, but the rate of gain is decelerating sharply.  It had peaked in November 2013 at 13.7%, so the increase is off one-third.  That said, the increases are still impressive with only New York, Charlotte and Cleveland having home costs increase by less than five percent.

While housing seems to be in a lull, hiring is not.  The Paychex/IHS Small Business Hiring Index rebounded from a spring thaw and is closing back in on the record high it posted in April.  Except for the West South Central, which includes Texas, all regions were up nicely over the year.  The Mountain and Midwestern regions led the way with somewhat more modest gains being recorded along the East Coast.

MARKETS AND FED POLICY IMPLICATIONS: It just seems that when it comes to breaking out of its slow growth pattern, if it isn’t one thing that restrains activity it is another.  When manufacturing came around, housing and the labor market lagged.  Then housing started to rebound, but jobs and incomes were not growing rapidly.  Now that firms are hiring, the housing market is starting to stumble.  Will we ever get things going all at once?  Maybe, but not right away.  Still, the key remains wages and with small business hiring picking up, that bodes well for income growth.  As for the housing situation, I differ from many of my colleagues.  While others bemoan the rising prices as a problem for first-time buyers, I cheer rising prices because they are lifting people out of the negative equity/minimal equity trap.  Without enough equity to buy another home, families are basically “home bound”.  The normal churn in the market, where current owners move around, is limited.  The more prices rise, the more households can move.  I think adding to equity is a more important factor in getting the housing market back to normal than keeping prices low so new buyers can enter.  But that is just me.  Anyway, it is still earnings season and with geopolitical concerns lurking, these reports are not likely to move the markets much.  And let’s not forget that the Fed has started its two-day meeting.  Not much news is expected tomorrow, when the FOMC meeting ends, but it still hangs over the markets.