To The Moon

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POST-FED HANGOVER DATA: GDP, HOME SALES, JOBLESS CLAIMS, ET AL

A plethora of generally upbeat economic data helped market participants swallow the bitter Fed pill, as investors found solace from fewer 2025 rate cuts in the comfort of a solid economy.

Except for the manufacturing sector, that is.

The Commerce Department took its third and final stab at third-quarter GDP figures USGDPF=ECI, unexpectedly hiking the topline figure to a 3.1% quarterly annualized growth rate.

Breaking it down by components, the consumer (who accounts for about 70% of the economy) contributed more than previously reported, adding 2.5 percentage points to the topline, while business investment - particularly in equipment and technology - were also upwardly revised.

The housing investment drag wasn't quite as heavy as previously reported, and while imports and exports were both revised higher, net trade subtracted 0.4 ppts from the headline figure.

"The composition of revisions does strengthen our conviction that the economy is on solid footing and that 2025 will be another good year," says Ryan Sweet, chief U.S. economist at Oxford Economics. "Growth in real consumer spending was revised higher, another reminder not to bet against the consumer, particularly when there are plenty of tailwinds for aggregate consumption."

Turning to housing, the sales of pre-owned American homes USEHS=ECI increased by 4.8% last month to 4.15 million units at a seasonally adjusted annualized rate (SAAR), according to the National Association of Realtors $(NAR.UK)$.

The number landed nearly 2% to the north of analyst estimates and marked an eight-month high.

Breaking it down, sales of single-family homes, which accounts for the lion's share of the total, increased 5.0%, marking a solid acceleration from the prior month's 3.5% increase. Condos and co-ops, on the other hand, decelerated a bit to 2.6%.

The stronger-than-expected sales drove inventories down. At last month's pace, it would take 3.8 months to sell every available home on the market, down from 4.2 months supply in October.

"Home sales momentum is building," says Lawrence Yun, NAR's chief economist. "More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%."

Flipping to side 'B' of the Fed's dual mandate, 220,000 U.S. workers joined the queue outside the unemployment office last week USJOB=ECI, a 9.1% drop from the previous week and 10,000 fewer and consensus.

Even so, the underlying trend, as expressed by the four-week moving average of initial claims, is essentially sideways in the 225,000 range.

Ongoing claims USJOBN=ECI, reported on a one-week lag, inched 0.3% lower to 1.874 million

"The pullback in initial claims provides reassurance that the pace of deterioration in the labor market is gradual and that the previous week’s jump was mostly due to difficulties in seasonal adjusting the data around the Thanksgiving holidays," says Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "But leading indicators point to a renewed rise ahead."

Speaking of leading indicators, an amalgamation of forward-looking economic indicators shows the American economy is gaining strength.

The Conference Board's $(CB)$ Leading Economic index USLEAD=ECI posted a surprise gain of 0.3% in November, busting a multi-year losing streak.

"The US LEI rose in November for the first time since February 2022," writes Justyna Zabinska-La Monica, CB's senior manager of Business Cycle Indicators, at The Conference Board. “A rebound in building permits, continued support from equities, improvement in average hours worked in manufacturing, and fewer initial unemployment claims boosted the LEI in November."

The LEI aggregates 10 forward-looking indicators, including ISM new orders, building permits, jobless claims, Treasury yield curve, and the S&P 500 performance, among others.

Finally, factory activity in the Atlantic region has sputtered this month.

The Philadelphia Federal Reserve's General Business Activity index (familiarly the Philly Fed) USPFDB=ECI defied expectations by plunging deeper into contraction territory, sliding to -16.4 instead of rebounding to an even 3.0, as predicted by economists.

Taken together with Monday's weaker-than-forecast Empire State reading, it would appear U.S. manufacturing continues to struggle for footing.

A Philly Fed/Empire State reading above zero indicates monthly expansion, while a negative reading signifies contraction.

"In the near term, still-high borrowing costs coupled with tight credit conditions remain obstacles for the manufacturing sector," writes Carl Weinberg, chief economist at High Frequency Economics. "Lower interest rates, when they get here should boost activity and demand. If tariffs are imposed in January, then everything changes for many businesses - for the worse."

(Stephen Culp)

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