We are cautious on the consumer and SHORT housing.


Over the last two weeks the incremental data points on jobs, housing and consumer sentiment have all been incrementally more negative.  Ironically, the government reported the U.S. economy expanded at a 5.9% annual rate in 4Q09, more than what was reported last month.  The improvement in the GDP number is reflecting stronger business investment and a greater contribution from inventories and not an improvement in consumer spending.


The University of Michigan final index of consumer sentiment for February fell to 73.6 from 74.4 in January.  Breaking down the index, the measure of current conditions, which reflects Americans’ perceptions of their own finances, rose to 81.8 this month from 81.1 in January.  The index of expectations six months from now, which projects the direction of consumer spending, dropped to 68.4 from 70.1 in January. The preliminary February reading was 66.9.


Putting in context the decline in the expectations component it’s not surprising that the last two data points on housing have been to the down side. 


Earlier this week sales of new homes fell in January to the lowest level on record.  New home purchases declined 11% to an annual pace of 309,000, as the median sales price dropped 2.4% from January 2009.  The supply of unsold homes increased to 9.1 month’s worth, the highest since May 2009. 


In isolation, the decline in new home sales can be explained away by the supply and favorable prices on “nearly new” homes that are being sold on foreclosure.  The manufacturers of new homes can’t compete with a bank that does not want an ever growing supply of foreclosed homes on its balance sheet.


 Unfortunately the news on resales is not looking much better.  Today the NAR reported that resale of U.S. homes fell 7.2% in January to a seasonally adjusted annual rate of 5.05 million; the lowest in seven months.  The sales of existing homes have now fallen for two consecutive months.  


Seasonality issues are currently playing into the depressed numbers, and the spring selling season should add some lift to the current trends, but that will be the gasp of air.  



Howard Penney
Managing Director








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