January Consumer Confidence, Philadelphia Fed NonManufacturing Survey and November Housing Prices

KEY DATA:  Confidence: +2.2 points; Present: -2.8 points; Expectations: +5.5 points/ Phila. Fed (NonMan.): +9.1 points; Orders: +9.7 points; Employment: +8.9 points/ FHFA: +1%; Over-Year: 11%/ Case-Shiller: +1.4%; Over-Year: +9.5%

IN A NUTSHELL: “Housing remains strong and confidence is holding up, so the economy should continue growing decently.”

WHAT IT MEANS:  The January 6th attack on the Capitol raised questions about where consumer confidence would go.  It is not as if it was booming.  Early signs are that households have shrugged off the violence.  The Conference Board’s Consumer Confidence Index rose in January.  However, the details were mixed.  While household expectations improved solidly, possibly due to prospects of even more government money flowing their way, the view on current conditions took a hit.  As I have noted before, changes in confidence that are largely due to non-economic factors tend to have minimal impact on consumer behavior. That respondents believe both business conditions and the labor markets will firm over the next six months reinforces that view.

The Philadelphia Fed’s index of regional nonmanufacturing activity rose solidly in mid-January.  While that sound nice, the reality is that conditions in the region are not very good.  The overall index remained negative, meaning that perceptions are that the economy continues to decline.  That was also true of business activity for individual firms.  And while the orders measure improved, it went from declining to largely flat.  Product and labor cost increases accelerated, while pricing power faded.  About the only good news in the report was that full-time hiring picked up. 

On the home price front, there were two reports released and both showed that the surge continued in November.  The Federal Housing Finance Agency’s national index jumped again and over the year it was up double-digits.  Similarly, the Case-Shiller national index increased sharply in November and the rise over the year is pushing ten percent.  We might be seeing the beginnings of a moderation in price gains. The FHFA November increase was the smallest since June 2020, while the Case-Shiller rise, though still quite high, was also down a touch. 

IMPLICATIONS:Economists have been saying for months now that the economy would moderate as we ended 2020 and especially as we moved through the first half of 2021. The key question was whether the consumer could hold up.  Part of that concern came from the simple fact that the government’s income policies have kept spending going.  The second stimulus package did include additional funding and that should help, but only until the early summer at the most.  President Biden’s $1.9 trillion plan is already running into roadblocks.  It is not likely we will see any household and business subsidy plan passed before March or April.  That should be early enough to get us through the year, even if there are significant cuts to the subsidies.  So, while growth should moderate from what is likely to be a strong fourth quarter number (that will be released on Thursday), it should not falter significantly.  Meanwhile, the FOMC began its two-day meeting today and we get the statement tomorrow afternoon.  That the Committee will continue to commit to keeping rates low for an extended period is a foregone conclusion. What I am looking for is what Fed Chair Powell might say about fiscal policy.  He has been arguing that more is needed, and President Biden is proposing a lot more, but it is not clear if he will weigh in again on the issue.  Regardless, as long as more stimulus is expected, and it is, investors should remain upbeat.