Last Week’s Economic News in Review (February 2nd, 2022)
February 2nd, 2022
New home sales grew, and the GDP turned in its best calendar-year performance in decades. That said, consumers remained cautious in their outlook.
New Home Sales
Sales of new, single-family homes jumped to an annual rate of 811,000 in December, which was 11.9 percent up from November’s revised pace of 725,000, the Census Bureau and the Department of Housing and Urban Development reported last week. December’s sales were better than economists’ expectations that December would grow to a rate of 757,000.
While up from the previous month, when compared to the same period a year ago, December’s sales were 14 percent below December 2020’s pace of 943,000. All told, an estimated 762,000 new homes were sold in 2021, which was 7.3 percent below the 2020 figure of 822,000.
Looking at pricing, the median price for new single-family homes sold in December dropped to $377,700, which was 9.2 percent lower than November’s revised median price of $416,100, and 3.3 percent higher than December 2020’s median price of $365,300.
Looking at inventory, the estimated number of new homes for sale at the end of December totaled 403,000, representing a six-month supply at December’s sales rate.
GDP
Gross domestic product (GDP) continued to turn the corner on Covid-19, growing at an annual rate of 6.9 percent during the fourth quarter, according to last week’s advance estimate from the Bureau of Economic Analysis.
GDP measures the nation’s total output of goods and services, and GDP grew 5.7 for the year of 2021, marking the biggest calendar year growth since 1984 when GPD grew 7.2.
In both cases, 1984 and 2021, it’s important to note that the large GDP gains were recoveries from economic trouble. In 1984, the economy was rising out of a recession, and in 2021, the economy was benefitting from stimulus efforts implemented after 2020’s forced Covid-19 shutdown.
Now that much of the Covid-19 stimulus has been dialed back, we will see how the economy performs in 2022. Obviously, a chief concern among businesses and consumers alike is inflation, which is also at its highest point in more than three decades.
Bearing that in mind, the Federal Reserve signaled last week that it would raise interest rates multiple times this year.
“There’s a risk that the high inflation we’re seeing will be prolonged,” said Federal Reserve Chairman Jerome Powell after a two-day meeting of the Fed last week. “… We have to be in a position with our monetary policy to address all of the plausible outcomes.”
Consumer Confidence
How is all of this weighing on the minds of consumers? The Consumer Confidence Index declined to 113.8 in January, down from 115.2 in December (a baseline of 100 was set in 1985), according to last week’s report from The Conference Board.
The Present Situation Index, which measures consumers’ outlook on current income, business and job market conditions, rose to 148.2 in January from 144.8 in December. The Expectations Index, which gauges consumers’ short-term outlook for the economy and their place in it, dipped to 90.8 in January from 95.4 in December.
The percentage of consumers stating that business conditions were “good” rose to 21.1 percent in January from 19.4 percent in December. However, those reporting they felt business conditions were “bad” declined to 25.6 percent in January from 27.1 percent in December.
So, consumers feel good about the present situation, but their opinions about the near future are a little more guarded. Why is that? Lynn Franco, the senior director of economic indicators at The Conference Board, attributes this to two things: the continuing Covid-19 pandemic and inflation.
“… Concerns about inflation declined for the second straight month, but remain elevated after hitting a 13-year high in November 2021,” she said. “Concerns about the pandemic increased slightly, amid the ongoing Omicron surge. Looking ahead, both confidence and consumer spending may continue to be challenged by rising prices and the ongoing pandemic.”
This week, we can expect:
Tuesday – Construction spending for December from the Census Bureau and Department of Housing and Urban Development.
Thursday – Initial jobless claims for last week from the Employment and Training Administration; trade deficit for September from the Bureau of Economic Analysis; factory orders for December from the Census Bureau.
Friday – Payrolls, unemployment rate and average hourly earnings for January from the Bureau of Labor Statistics.
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