Falling Consumer Optimism Meets Housing Recovery
Weekly Economic Review: December 27, 2024
Consumers grow less optimistic about the economy, their income and the labor market, while new single-family home sales bounce back after a steep decline
Last week was a relatively slow one for new economic data, driven both by the Christmas holiday and the normal cycle of data releases, but there were some market-moving announcements. For the first time in three months, consumer confidence declined unexpectedly in December, driven mainly by concerns about future business conditions, incomes, and employment prospects. Uncertainty regarding the implementation of tariffs and other policies by the incoming Trump administration were also a factor.
New home sales rebounded in November after a significant October decline due to hurricanes. The supply of new homes for sale reached its highest level since the end of 2007. The median new-home price declined on both a monthly and annual basis. Both the increased supply and lower prices in November should provide some improvement in housing affordability.
Let’s examine in more detail the Conference Board Consumer Confidence Index and its survey results, as well as the monthly new residential sales data announced last week.
Consumer Confidence: The Conference Board announced that its Consumer Confidence Index, which measures consumers’ assessments and expectations regarding business conditions, income, and the labor market, came in lower than expected, declining by 8.1 points in December to 104.7. This decline was mainly due to concerns about the economic outlook and future business conditions. The decrease was led by consumers over 35 years old, and those with household earnings between $25K and $100K. Consumers under 35 and those earning over $100K remained the most confident.
Consumers’ perceptions of the current labor market improved slightly, with the survey’s so-called labor market differential (views on whether jobs are plentiful or hard to get – a metric closely followed by the market to gauge labor-market strength) widening to 22.2 from 18.4 in December.
Consumers became slightly less optimistic about the stock market in December. More consumers anticipated higher interest rates over the next 12 months. The proportion of consumers anticipating a recession remained stable, but assessments of their family’s financial situation weakened. Plans for purchasing homes were down slightly, potentially reflecting rising mortgage rates despite recent Federal Reserve rate cuts. Plans for autos and other big-ticket purchases increased. Consumers also expressed intentions to purchase additional services, especially dining out and streaming.
In write-in responses about factors affecting consumers’ views on the economy, mentions of politics and tariffs increased, with 46% of consumers expecting tariffs to raise the cost of living.
New Home Sales: According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, new single-family home sales increased by 5.9% in November to an annualized rate of 664,000, after advancing to 627,000 (revised up from 610,000) in the prior month. The November headline figure was almost in line with the market expectation of 665,000. Sales improved in the South (13.9% to 417,000) and the Midwest (17.3% to 88,000) but declined in the West (-7.5% to 136,000) and the Northeast (-41% to 23,000).
On an annual basis, new home sales rose by 8.7% from 611,000 a year ago. The supply of new houses for sale increased to 490,000 in November, representing a supply of 8.9 months at the current sales rate. This figure rose to its highest level since the end of 2007. The median sale price of new houses sold in November was $402,600, a decline from $425,600 (5.4%) month-over-month and $429,600 (6.3%) year-over-year.
On a concluding note, similar to last week, the market expects a 100% probability of a 0.25% rate cut and a 50/50 chance of another 0.25% rate cut for 2025. It anticipates a 0.25% cut by the June FOMC meeting. The Treasury yield curve slightly steepened again, with the two, five, and ten-year Treasury yields ending at 4.31%, 4.45%, and 4.62%, respectively, rising by 1, 8, and 10 basis points compared to their levels a week ago.
As of today, the Atlanta Fed’s GDPNow model estimate for fourth-quarter GDP growth is 3.1%. Compared to other countries, it appears that the U.S. economy continues to be robust and exceptional thus far in the fourth quarter, extending the third quarter’s 3.1% GDP growth.
Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California
Thomas McCullough
EVP of Commercial Bank of California
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