U.S. Economy: Housing's Hints to the Fed

Written by: Global Thought Leadership | November 30, 2018

Chart Courtesy of Western Asset Management.  Source: U.S. Census Bureau, as of 31 Oct 18. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line

  • Sales of new homes in October came in at a disappointing 544,000 annual rate,[1] 8.9% below September’s rate[2] and down about 24% from its peak level in November 2017.
  • The decline in new home sales is echoed in the figures for single-family building permits and starts, which have also been trending downward to varying degrees for several months.
  • All this has pushed up unsold house inventory, estimated at  7.4 months’ worth of sales at the most recently available sales rate.
  • That’s notably above the normal inventory level of 4 to 5 months seen in periods outside of housing bubbles, according to Western Asset.
  • Recent weakness could be viewed as a sign that the housing market has started to feel the effect of the FOMC’s rate hikes this year, whose stated intention has been to move the central bank’s stance from “accommodative” to a more neutral stance, i.e., neither promoting nor hindering the economy’s presumed natural rate of growth.
  • That signal joins other indications that might influence the Fed to slow the pace of future rate increases -- including a decline in core PCE inflation, the Fed’s preferred gauge, to a 1.78% rate in October.
  • That latest reading continues a pattern of inflation falling short from the Fed’s 2.0% target – a sign growth and inflation may not be rising as quickly as many think. For more detail, explore Western Asset’s thinking on inflation and growth.
  • While financial markets remain convinced that December will see the another Fed rate hike, the accumulation of data on which the FOMC depends could very well be telling the committee – and the markets – that the three hikes expected in 2019 could be less likely to happen than previously believed.

All data Source: Bloomberg as of November 30, 2018, unless otherwise noted.

 

[1] Source: U.S. Census Bureau. This is the seasonally-adjusted annual rate, taking into account calendar differences as well as other seasonal factors.

[2] As part of the October data release, September’s sales rate was revised upward by 8.0%. 

 

Definition:

The Personal Consumption Expenditures (PCE) Price Index, or PCE Inflation, is a measure of price changes in consumer goods and services; the measure includes data pertaining to durables, non-durables and services. This index takes consumers' changing consumption due to prices into account, whereas the Consumer Price Index uses a fixed basket of goods with weightings that do not change over time. Core PCE excludes food & energy prices.

 

[1] Source: U.S. Census Bureau. This is the seasonally-adjusted annual rate, taking into account calendar differences as well as other seasonal factors.

[2] As part of the October data release, September’s sales rate was revised upward by 8.0%. 

 

[1] Source: U.S. Census Bureau. This is the seasonally-adjusted annual rate, taking into account calendar differences as well as other seasonal factors.

[2] As part of the October data release, September’s sales rate was revised upward by 8.0%. 

 

[1] Source: U.S. Census Bureau. This is the seasonally-adjusted annual rate, taking into account calendar differences as well as other seasonal factors.

[2] As part of the October data release, September’s sales rate was revised upward by 8.0%. 

 

[1] Source: U.S. Census Bureau. This is the seasonally-adjusted annual rate, taking into account calendar differences as well as other seasonal factors.

[2] As part of the October data release, September’s sales rate was revised upward by 8.0%. 

 
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