Anthony Chan
Anthony Chan
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There's no question unemployment is what drives consumer confidence, which in turn drives consumer spending. We have to be realistic and accept the notion that, as we enter the first quarter and December, these sales are going to get a bit weaker. We're still in a recession.
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With the surprise jump in new home sales and the outsized rise in existing home sales, we now see that widespread talk of the demise of our moderate economic recovery has been somewhat exaggerated.
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We see the slowdown crystal clear in the MBA purchase index, and it's starting to show up in monthly sales data. The one thing that was supporting the market, low mortgage rates, is being taken away.
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It confirms the belief that the weakness in retail sales was the result of a bunker mentality in the wake of the terrible events of Sept. 11.
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The overall total of nominal sales is likely to remain somewhat weak.
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The outsized gain in housing starts was influenced by the same variable dominating most of the other headline stats like the retail sales and industrial production, namely weather. Everyone knows that housing starts is a volatile number that generally reports wide swings.
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I think it was interesting that sales fell despite the fact that we had limited auto incentives in November. It raises the question of what is likely to happen once these incentives disappear entirely.
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Real new home sale prices and existing-home sale prices have been rising very sharply. When that starts to give way and we don't have the equity market picking up where housing left off, that's another reason the economic expansion will be gradual.
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The retail sales figures clearly prove that betting against the consumer is a sucker's bet. Not surprisingly, the ex-auto figure on retail sales tears down the argument that consumers are only buying cars and houses.
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These numbers are essentially telling us that retail sales were artificially boosted by zero-percent financing. These numbers are not going to do anything to discourage the Fed from thinking that the balance of risk in the economy is toward weakness.
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The new-home sales market is the canary in the coal mine. Builders have a better clue as to what the right price is to move a house.
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The housing market is resilient, still going strong, but it would be a mistake to ignore the weakness in existing sales and assume everything is copasetic.
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What the Fed showed was that extraordinary circumstances require an extraordinary strategy. Not only are they moving rates to lows not seen since the early '60s, they're prepared to move them a lot lower.
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We will see more bad news on the employment front. We see unemployment going to 6.1 percent or 6.2 percent before it's over; no way are we going to see that coming down while we're creating so few jobs.