Redbook Sales - Same Store Sales Growth Moderates
Redbook sales year over year same store sales growth rate of 5.4% last week supported the strong consumer sentiment reading.
Growth fell to 5.2% this week which is still above the 4.6% growth of 2 weeks ago. The deceleration from 9.3% in December has stalled for now. Growth in the mid single digits is very strong, so remaining at this level is a big positive.
Retail sales and Redbook weren’t on the same page in December, but it seems obvious the retail sales report was way off. I expect solid retail sales growth in February. Retail sales might not be as strong in January because of the government shutdown.
Redbook Sales - Very Solid MBA Applications
MBA mortgage applications index was great in the week of February 22. It countered the Conference Board reading which stated consumers weren’t in the mood to buy houses or much of anything.
Personally, I trust applications more than a sentiment reading. That’s because it’s possible people change their minds flippantly. Someone can say they went from wanting to buy a house to pulling back, but unless we see action, it’s immaterial.
It’s easy to measure why housing demand will change. The main factors are the labor market and housing affordability. Real wage growth is still strong, interest rates have fallen, and house price growth has fallen.
Zillow, which has a great forecasting track record, projects national home price growth will fall from 4.7% to 4.4% in January which would be the weakest growth rate since July 2015. If that’s the case, housing is still becoming less affordable, but at a lower rate. Average weekly wage growth on a non-seasonally adjusted basis was 3.2% in January.
With wage growth increasing and house price growth falling, their paths will soon cross which would make housing more affordable. If jobless claims remain stable, we could see the housing market improve.
As you can see from the chart below, in the week of February 22nd, the MBA purchase applications index was up 6% after increasing 1.7% in the previous week. It is up 3% year over year.
As you can see, it is in a 3 year uptrend. It is nowhere near the peak in 2005. That supports the notion that the housing market isn’t in a bubble again even though housing is not affordable in many areas. 30 year mortgage rate stayed the same at 4.35% this week. 15 year mortgage rate fell 1 basis point to 3.77% after peaking at 4.36% in mid-November.
Refinancing is not close to as popular as it was a few years ago. But the index was up 5% this week on top of 6.4% growth. This caused the composite index to increase 5.3% after increasing 3.6%.
Redbook Sales - Strong Pending Home Sales
January pending home sales report was strong. This report is highly correlated with existing home sales lagged 18 months. That means this good report means existing home sales will be strong in mid-2020.
Specifically, pending home sales were up 4.6% month over month. That beat estimates for 1% growth. The December report was revised lower to -2.3% monthly growth which shows the January report had a very easy comparison. The index increased from 98.7 to 103.2.
Whenever the index is above 100, it means housing activity is historically above average.
Yearly pending home sales still fell 2.3%, proving this small recovery has more to go to bring positive yearly growth.
As you can see from the map above, the West was very weak on a yearly basis as it fell 10.1%. It has the lowest index, indicating activity is below average.
On the positive side, it had 0.3% monthly growth. South is the largest housing market by far. That explains why the overall index is above the other 3 regions. South had by far the highest index as it was 119.8 which was down 3.1% from last year and up 8.9% monthly. Northeast has the strongest yearly growth as it was 7.6%.
This potentially signals the housing market isn’t a disaster in some of the high tax states like New York and New Jersey despite the $10,000 limit to SALT tax deductions.
Redbook Sales - Jobless Claims Increase Slightly
Jobless claims report this week was the opposite of last week because claims increased, while the 4 week average plummeted.
Last week claims fell sharply, while the 4 week average increased. Last week’s claims were revised from 216,000 to 217,000 which is still extremely low. They increased to 225,000 which met estimates exactly. That’s rare to see. Despite the revision higher and the 8,000 increase in the latest report, the 4 week average fell 7,000 to 229,000.
The table that showed terrible returns after the unemployment rate rises above its 12 month average while being below 5% and the 4 week average of jobless claims is at its year high is no longer in play.
It was always extremely silly to be bearish on stocks based on a 250 difference in the 4 week average of jobless claims. When claims spike it’s bad, but there needs to be more of an increase than what we’ve seen this year. The monthly labor report will come out next Friday.
That’s a rare case where it isn’t released on the first Friday of the month. Since claims were strong last week, I expect a strong report, showing at least 150,000 jobs created.
Continuing claims were up 79,000 to 1.805 million. That report is delayed one week, so it is on the week of February 16th, not the 22nd like the jobless claims. 4 week average is 1.762 million which is above the January average just like jobless claims.
Unemployment rate for insured workers was up 0.1% to 1.3% for its first increase since December.
Redbook Sales - Conclusion
Redbook same store sales, pending home sales, MBA purchase applications, and jobless claims were all solid. This bodes well for those calling for an acceleration in economic growth.
GDP growth has fallen 2 straight quarters; it will be 3 if Q1 growth is below 2.6% which seems likely.
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