Initial Jobless Claims are moving in the wrong direction, unfortunately, as the number of people filing for unemployment benefits for the first time increased in the latest week. However, homebuilders remain confident thanks to the strong demand for homes around the country.
Jobless Claims Moving in the Wrong Direction
Another 885,000 people filed for unemployment benefits for the first time during the week ending December 12, which is an increase of 23,000 claims from the prior week.
Continuing Claims, which are delayed a week, did decrease by 273,000 to 5.5 million. While on the surface this sounds like good news, unfortunately the decrease is for the wrong reasons.
When regular benefits expire, people can file for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits another 13 weeks – and that figure increased by nearly 700,000! This is just further evidence that a new stimulus deal and the vaccine distribution are crucial to help businesses and employees in the months ahead.
Builder Confidence Remains Strong
The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, fell 4 points in December to 86 after setting a record high in November. Even though this was a pullback, it is still the second highest number on record. Any reading over 50 in this index that runs from 1-100 signals that more builders see conditions as good versus poor.
All three components of the index declined 4 points in December, with current sales conditions reported at 92, sales expectations for the next six months at 85, and buyer traffic dropping to 73. Again, despite the declines, these are still strong readings.
NAHB Chief Economist Robert Dietz noted “housing remains a bright spot for a recovering economy.”
The latest construction data also supports the strong demand for housing, as Housing Starts rose 1.2% in November from October's revised rate. Starts are also 12.8% higher than they were compared to November of last year. While starts on multi-family units led the way, single-family starts were up 0.4% and at their highest level in 13.5 years.
Building Permits, which are a good future indicator of Housing Starts, rose 6.2% from October's revised rate and they were also up 8.5% year over year. Single-family permits ticked up 1.3% from October to November.
The Latest from the Fed
The Fed held its regularly scheduled meeting, which was something of a non-event as they noted they will continue to purchase Mortgage Backed Securities and Treasuries at their current levels (which has helped stabilize the markets), rather than expand their Bond buying program. Fed Chair Jerome Powell did note, however, that the Fed stands ready to buy more longer-dated maturity Bonds if they feel the economy needs it.
The Fed also reiterated that they are going to keep their benchmark Fed Funds Rate at zero until at least 2023 and that they would not jump the gun on rising rates, even if there are some transient blips of inflation due to COVD and demand coming back faster than supply. Note that the Fed Funds Rate is the rate that banks use when lending to each other overnight and it is not the same as home loan rates.
As far as their projections, the Fed thinks the unemployment rate will be 5% in 2021 and GDP will be 4.2%.
Also of Note
While housing remains a bright spot in our economy, retailers struggled in November due to the spike in COVID cases. Retail Sales fell 1.1%, much worse than the 0.3% drop expected, while Core Retail Sales (which excludes automobiles, gasoline, building materials and food service) fell 0.5%. This was also lower than the 0.2% gain expected. This report shows how crucial additional stimulus is for businesses and families to bridge the gap until vaccines are widely deployed.
The pandemic is also causing a slowdown in manufacturing in the New York and Philadelphia regions, as the Empire State Index came in below expectations in December at 4.9 while the Philadelphia Fed Index was reported at 11.1, also below estimates of 21.1.