Update on economic data

Several economic data points have been rolling in over the last several days…

New Home Sales:

Sales of new single-family homes fell 11.3% in November; the lowest figure since April. Economists had expected a drop of 1.2%. Uh, clearly that’s a lot worse than expected. New home sales are for brand new residences and not used home sales.

Analysis: This is clearly not a good figure. In fact, the number of sales, 355 thousand, is so low that it basically has wiped out the gains of the entire year. This figure however, is tempered by the fact that there is soooo much inventory on the market of existing homes. However, for the construction industry in particular, this is a grim figure.

Personal Income:

The income of your average U.S. citizen rose 0.4% in November vs. October. This figure was slightly less than the 0.5% increase economists had been expecting.

Analysis: This is a somewhat encouraging number especially when coupled with the fact that the employment situation is slowly improving. This figure will likely be interpreted positively by the financial markets because more income = the possibility for more spending. In fact…

Consumer Spending:

Consumer spending rose 0.5% last month vs. October.

Analysis: The financial markets will doubtless love this number. Despite the fact that the other two economic data points were weaker than expected, it’s likely this is the figure that will catch investors’ attention. For me though, this is not an encouraging statistic. Why? Because spending rose more than incomes. That means that roughly 70% of the economy spent more than it earned. As I have written about extensively on the blog, one of the reasons that the world has been in a deep recession for the last two years is because of consumers’ proclivity for debt. That debt has to be financed somehow and if that lending is made to low credit-worthy individuals then we are right back where we started in terms of economic meltdown ingredients. I will continue to track the spending vs. income number going forward as this deserves our attention.

Be well everyone!

Jason