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    MARKET EDGES

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Housing, labor markets, commodity deflation and a strengthening US dollar have kept us bullish on consumption over the last month. We expect consumption, which is a driver of growth in the economy, to continue to improve going forward as home prices rise while existing inventory falls and commodity prices fall lower.

Last week’s housing data was decidedly positive as existing home inventory declined 24.7% on a year-over-year basis to 1.74 million units and sits around 50% below the 2007 peak. The National Association of Realtors (NAR) reported that median home prices rose 12.2% year-over-year in January, marking the 13th consecutive month of acceleration. We’re of the belief that rising prices will continue to drive demand which should drive further pricing gains.

Consumption Junction - homes1

Consumption Junction - homes2

As for the US dollar, a stronger US dollar drives down commodity prices which drives consumption as more consumers head out to the grocery store and gas station and see a material change in price when shopping. The only remaining economic headwind that we still face is oil prices, which have shifted downward over the last two days but are up again this morning. When gas prices drop significantly and oil prices come down, we will really see consumption take off in a meaningful way.