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The economy is continuing to catch up to the stock market: Morning Brief

Myles Udland
Markets Reporter

Friday, January 17, 2020

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Consumer, labor, housing data impress and stocks hit new highs

In the December 17, 2019 edition of the Morning Brief newsletter, we said the stock market was catching up to the economy. The stock market had just hit record highs. Housing and manufacturing data had topped expectations. The economic data was filling in the blanks of the story the stock market had been telling investors for a couple months: better days are ahead.

Exactly one month later, the story is once again worth reiterating.

On Thursday, all three major indexes closed at record highs. For the second time in history, the Dow (^DJI) closed above 29,000. And the stock market continues to both indicate better times ahead, while the data continue bolstering the economic story implied by frothy financial markets.

During Thursday morning's economic data deluge, investors were treated to solid data on the state of the U.S. consumer, the labor market, and the housing market.

The week’s most anticipated economic figure — the December reading on retail sales — impressed. Sales rose 0.3% over the prior month, matching both Wall Street estimates and the increase seen in each of the last two months.

But the data got better when looking at “core” retail sales (which exclude autos, gas, and building materials) as December saw a 0.5% improvement in “core” sales, a notable pickup from the 0.1% advance seen in November.

Core sales are also what feeds into GDP, and analysts at Oxford Economics note this data suggest real consumer spending rose at an annualized rate of 2.2% in the fourth quarter, with overall GDP growth now on track to advance 2.5% to finish the year. Elsewhere, Bloomberg’s consumer comfort index rose to its highest level since October 2000.

“A critical question as we begin this new decade is whether the US consumer can continue to pull more than its weight,” Oxford Economics said in a note published Thursday. “Resilient labor market conditions, surging stock prices, and lower gasoline prices all came together to prop up consumer outlays last year, but we expect this powerful combination to fade gradually.”

Part of Oxford’s analysis is due to what it calls “cooler” employment trends. In December, for instance, the U.S. economy created 145,000 jobs — fewer than expected and a notable slowdown from November’s job gains of 260,000.

The Charging Bull sculpture by Arturo Di Modica, in New York's Financial District. (AP Photo/Richard Drew, File)

Some investors had also grown wary of the labor market due to weekly initial jobless claims data, which had been somewhat elevated at the end of 2019. Thursday’s reading, however, should quell some of these concerns.

Jobless data fell to 204,000 for the week ending January 11, the lowest level for claims since early November. Economists expected claims would rise modestly to 220,000.

Ian Shepherdson at Pantheon Macroeconomics said Thursday that, “Claims have now reversed their early December spike, which was due to seasonal adjustment problems after Thanksgiving. The trend likely remains about 215K, a record low as a share of the employed workforce.”

The January sentiment index from the National Association of Home Builders released Thursday also showed continued positivity in the housing sector. The index registered a reading of 75, just one point below December’s 20-year high. The last two months mark the highest sentiment levels for home builders since July 1999.

NAHB chief economist Robert Dietz said in a release Thursday that, “with the Federal Reserve on pause and attractive mortgage rates, the steady rise in single-family construction that began last spring will continue into 2020.”

Dietz notes, however, that the housing market is still grappling with headwinds we’ve seen in place for years: A lack of labor to build and a lack of inventory for starter homes.

Which aren’t bad problems to have.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

Economy

  • 8:30 a.m. ET: Building Permits, December (1.467 million expected, 1.482 million in November)

  • 8:30 a.m. ET: Housing Starts, December (1.380 million expected, 1.365 million in November)

  • 9:15 a.m. ET: Capacity Utilization, December (77.2% expected, 77.3% in November); Industrial Production month-on-month, December (0.0% expected, 1.1% in November)

  • 10 a.m. ET: University of Michigan Sentiment, January preliminary (99.2 expected, 99.3 prior)

Earnings

Pre-market

  • Notable reports include Kansas City Southern (KSU), JB Hunt (JBHT), Schlumberger (SLB), Fastenal (FAST) and State Street (STT)

Read more

Top News

Alphabet appears on a screen at the Nasdaq MarketSite in New York. (AP Photo/Richard Drew, File)

Google parent Alphabet market cap hits $1 trillion [Reuters]

China posts weakest growth in 29 years as trade war bites, but ends 2019 on better note [Reuters]

Gap pulls plug on Old Navy spinoff to focus on turning around sales [Reuters]

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Editor’s Note: Morning Brief will be observing Martin Luther King Jr. Day on Monday, January 20. It will resume on Tuesday, January 21.

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