Introduction

Housing is at the core of economic wealth and the latest indications, after a 2018 slump, aren't pointing to any rebound yet. Manufacturing is a centerpiece of economic measurement but the signals here are definitely mixed, which might be a definitive signal of itself. For the Federal Reserve which meets at month end the latest results fit in with, following December's rate hike, their dovish tones of conciliation and patience clearly heard in recent Fedspeak. And though the government shutdown, now a thing of the past at least temporarily, has been trimming back available data, there are still enough numbers getting published to give us a pretty good idea of where the economy is heading.

The economy

Mortgage rates began to move down late last year in what is a big plus for the 2019 economic outlook. But the rate move wasn't soon enough to help December's resales very much. Existing home sales posted a steep monthly decline of 6.4 percent to a 4.990 million annualized rate that is the lowest in more than three years and barely made Econoday's consensus range. Year-on-year, existing home sales ended 2019 at a 10.3 percent decline which is roughly where new home sales were tracking, at a 12.0 percent October decline in data, tracked in the green columns of the graph, that have since been delayed by the shutdown.

Looking at the details of December's resales, across the board weakness is a fair description with condo sales down a year-on-year 12.9 percent to 540,000 and single-family sales down 5.5 percent to a 4.450 million rate. The tail-end region for resales is the Midwest at an 11.2 percent yearly decline though all other regions are in the minus column as well. For those looking to buy an existing home, the bad news includes less selection as supply on the market fell a very sizable 10.9 percent in December alone to 1.550 million units for sale. Relative to sales, supply is at 3.7 months vs 3.9 months in the prior month. Unless available homes come into the market, low supply will limit sales progress. Mortgage rates peaked in November and are since down about 40 basis points for 30-year fixed mortgages to roughly 4.75 percent. This rate move is very likely to help sales in the resale report for January which will also get a comparison lift from what turned out to be a very weak December.

Weakening sales have translated into slowing growth for home prices where appreciation, nevertheless, is still very respectable. The house price index from the Federal Housing Finance Authority (FHFA), which remains open and continues to publish data, rose a solid 0.4 percent in November to hit the high end of Econoday's consensus range. October was revised 1 tenth higher and is also at a 0.4 percent monthly gain with the year-on-year rates at 5.8 percent for both November and October as tracked by the dark blue columns in the graph. Yet the 5.8 percent rate is a 2-1/2 year low and FHFA's data haven't help expectations for coming Case-Shiller data where estimates are calling for subdued results. A clear shift in regional strength has been underway in both FHFA and Case-Shiller data with price traction appearing outside the West which is fading. Year-on-year growth for the Pacific region was only 4.8 percent in FHFA's data, down 9 tenths from October and nearly half the rate at mid-year. The Mountain region was up 7.4 percent for what was, however, a 1.3 percentage point decline from October and a 2.1 point decline from September. In contrast, the East South Central, at 7.3 percent, was up 2.4 points in November with the Middle Atlantic, usually the weakest region in the FHFA report, up 1.4 points to a suddenly respectable 4.8 percent.

It's fair to ask the question whether price traction, moderating as it is, can hold up as well as it has given the slump in sales. The blue line of the graph tracks year-on-year change in sales of single-family homes (excluding condos) which over the last three years have moved from 10 percent growth to 10 percent contraction. The red line is the median price for this series which in contrast has moved only gradually, from the high-to-mid single digits to the low-to-mid single digits, at plus 2.9 percent in December. Nevertheless, this is the lowest rate since March 2012 and, if sales are any indication, it may have further down to go. Yet mortgage rates are favorable and demand in the labor market is still very strong, so the 2019 outlook for home prices may not be as bad as it looks. Note that the resale series is compiled not by the government but by the National Association of Realtors. Also note that home prices can fall very sharply in times of trouble, down as much as 10.6 percent for the year-on-year FHFA index during the depth of the subprime collapse in November 2008.

The cutback in economic data from the shutdown is by necessity focusing our attention on small sample diffusion surveys which track monthly change in distribution, that is the proportion of those saying conditions are rising or falling. These reports are not definitive but are useful, offering a heads up on possible shifts in economic direction as well as a stream of commentary on business conditions. And the signal being given by four regional Fed surveys is that manufacturing is stalling. Empire State, published by the New York Fed, is down nearly 8 points this month to 3.9 to indicate the slowest rate of perceived monthly growth in general activity in nearly two years. Richmond Fed's index fell into contraction in December and remains there this month at minus 2 this month. This index had been as high as 29 as recently as September but is now posting its lowest readings in more than two years. Kansas City's index has also been slowing, down to 5 in January with new orders, especially export orders, very weak and with backlogs evaporting fast. January's report for Dallas opens the coming week and other month of weakness for this sample, one especially tied to the energy sector, is the expectation. Yet whatever weakness reports like these are picking up, definitive data on the factory sector have proved very strong at least they did in December as manufacturing production in the prior week's industrial production report surged an unexpected 1.1 percent. And yet another indication of strength came from the prior week's report from the Philly Fed, the most closely watched of any regional report and, at 17 in January, not showing any weakness at all. Yet when economic indications turn mixed as they are now, and given the slowdown in global markets and uncertainty and dislocations tied to tariffs, the overall signal may well be unmistakable – one of moderation.

And moderation may also be the message being signaled by another manufacturing report, one from Markit Economics that tracks national conditions. The manufacturing PMI is 1 point higher this month at a respectable 54.9 on rising confidence and amid what the sample describes as "robust" domestic demand, demand that is helping to offset weakness on the export side. Yet the trend for this series, tracked by the blue line, has been sinking a bit the past year. Sinking even more sharply is the rival index produced by the Insitute for Suppy Management (ISM) which absolutely buckled in its last report for December. Growth in new orders lurched suddenly lower in this report. Commentary from all these reports consistently underscores weakening in global demand as well as tariff issues. The late-year collapse in oil prices is another important negative.

All the emphasis and survey money put into manufacturing is because manufacturing is considered to be the pivotal sector of the economy, representing perhaps no more than 1/10 of the total economy but accounting for most of its cyclical variation. Not surprisingly then, the service sector, which dominates the economy in size, appears to be showing less erosion than manufacturing, that is based on two diffusion reports. The ISM's non-manufacturing index has been moderating but at 57.6 in December still proved very strong. Markit's services PMI, however, has been indicating a slower rate of growth all along and has been lacking any punch in recent months including this month and a 2 tenths dip to 54.2. New orders in this sample are showing less strength though output has been solid. Business expectations are up but only slightly.

Though the service sector is flat and housing is weak and though manufacturing may be stalling, strength in the labor market appears to be building, the government having shutdown or not. Despite a significant rise in claims by furloughed workers, initial jobless claims fell a very sharp 13,000 in the January 19 week and are under 200,000 at a much lower-than-expected 199,000. This is the lowest showing in nearly 50 years when the labor force was half the size it is now. Federal claims accelerated sharply, up nearly 15,000 in the week to just over 25,400. This compares to just over 1,650 a year ago when there was no shutdown. Nevertheless, the 4-week average for initial claims is down a sharp 5,500 to a 215,000 level that is about 5,000 lower than the mid-December comparison in what hints at increasing strength in labor demand. Five states, however, had to be estimated in the week including California which does raise the risk for an outsized revision in the next week report. Yet historic lows have been a constant theme of jobless claims data for the past couple of years and that initial claims are making even greater lows is one of the surprises so far in 2019.

Markets: As goes jobs, so goes confidence and the DJIA

A highlight early in the coming week will be the January consumer confidence index from the Conference Board. And if the mid-January consumer sentiment index from the University of Michigan is any indication, a sharp drop may be in store. Yet perhaps not. The Conference Board's measure concentrates especially on consumer assessments of the labor market, both present openings and expectations for future openings. This index posted its own noticeable fall in December in what may have been an initial reaction to the prospect of a shutdown. In any case, a further decline is the consensus for January's report, to124.8 vs December's 128.1. The upward slopes of confidence and the Dow that are tracked in the graph are arguably little more than reflections of the labor market's underlying slope. And unless a slump in consumer confidence has fed into a slump for consumer spending, the ongoing strength of labor demand will likely prove a solid foundation for both confidence and for the stock market. And there is nothing more strong in its economic effect than the labor market. It was a back-and-forth week for the market as the Dow, at 24,737, edged 0.1 percent higher in the week for a year-to-date gain of 6.0 percent. And in possible signs of investor caution, gold popped back to the $1,300 level to end the week up nearly $25 at $1,304 while demand for Treasuries also firmed with the 2-year yield down 2 basis points to 2.60 percent and the 10-year down 4 points to 2.75 percent.

The bottom line

Housing is a domestic sector and its source of weakness is hard to pinpoint, after all the labor market is strong and domestic demand is strong. But foreign demand does appear to be slowing, as cited in the manufacturing surveys and strongly underscored in the week by Chinese GDP that has edged to a cycle low and a shaving in global GDP forecasts by the International Monetary Fund. Perhaps it's this slowing manifested in exports that the surveys in the U.S. are beginning to pick up. But another solid jobs report this time for January, which is the expectation for the coming week, would ease talk of slowing and the risk of knock-on effects, whether from foreign demand or government shutdowns.

Week of January 28 to February 1

There are plenty of data that may or may not be released in the week but there are still more that are certain to be released. And the week also has an FOMC meeting. Components for Monday's national activity index are likely to be scarce because of the government shutdown but a healthy gain is still the consensus. Advance data on trade and inventories were supposed to highlight Tuesday's session but may be delayed as may Wednesday's report on fourth-quarter GDP. Data that would get more attention as a result include Tuesday's consumer confidence report that will follow the shutdown-related plunge in consumer sentiment earlier in the month. Pending home sales on Wednesday will also be watched and will offer one of the few available indications on housing. But Wednesday will be dominated by the FOMC and Jerome Powell's press conference in what looks to be, given the global slowdown and risks tied to the government shutdown, a meeting that will produce a dovish spin. PCE price data may or may not be another casualty of the shutdown on Thursday. Not a casualty of the shutdown is data on the labor market and January's employment report promises to be one of the most closely watched in a long time. Respectable payroll growth is the expectation but shutdown issues are certain to add noise to the results.

Monday

National Activity Index for December

Consensus Forecast: 0.15

Consensus Range: 0.00 to 0.20

Production-related indicators, based on mining and utility strength, fed a strong gain for the national activity index in January and may well again in the report for December where manufacturing looks to provide the boost. Employment was also strong in the month. Forecasters see the national activity index coming in at a consensus 0.15 vs 0.22 in November.

Dallas Fed General Activity Index for January

Consensus Forecast: -4.6

Consensus Range: -7.0 to 7.0 

The price of oil is key for the Dallas Fed manufacturing survey which slowed sharply in November then fell further in December. Consensus for the Dallas general activity index is minus 4.6 in January vs minus 5.1 in December.

Tuesday

International Trade In Goods for December

Consensus Forecast, Month-to-Month Change: N/A

Consensus Range: N/A to N/A

The goods balance for November, when the consensus was $75.7 billion, has been delayed as will be the balance for December where there is no consensus. The last posting was in October at $77.2 billion.

Case-Shiller, 20-City Adjusted Index for November

Consensus Forecast, Month-to-Month Change: 0.3%

Consensus Range: 0.0% to 0.5%

Case-Shiller, 20-City Unadjusted Index

Consensus Forecast, Month-to-Month Change: 0.2%

Consensus Range: -0.1% to 0.4%

Case-Shiller, 20-City Unadjusted Index

Consensus Forecast, Year-on-Year Change: 4.9%

Consensus Range: 4.6% to 5.2%

Case-Shiller's 20-city adjusted index has posted solid monthly gains the past two reports though the year-on-year unadjusted rate, at 5.0 percent in October, was a 2-year low. Econoday's November consensus is a 0.3 percent gain for the monthly change and 4.9 percent for the yearly rate.

Consumer Confidence Index for January

Consensus Forecast: 124.8

Consensus Range: 119.1 to 129.0

After sinking sharply in December and given the ongoing government shutdown, the consumer confidence index for January is expected to slip 3.3 points to a consensus 124.8. December saw a second straight and very steep decline in expectations that was, however, partly offset by a modest decline in the present situation component.

Wednesday

ADP, Private Payrolls for January

Consensus Forecast: 167,000

Consensus Range: 150,000 to 175,000

Econoday's consensus for ADP's private payroll estimate in January is 167,000 which would compare with 271,000 for ADP's December estimate and against 301,000 in the government's data for December.

Real GDP: 4th Quarter, 1st Estimate, Annualized Rate

Consensus Forecast: 2.6%

Consensus Range: 2.3% to 2.9%

GDP Price Index

Consensus Forecast: 1.8%

Consensus Range: 1.0% to 2.4%

Though the government is reopening, Wednesday's release of the first estimate for fourth-quarter GDP may likely be delayed. The consensus is a 2.6 percent annualized rate vs 3.4 percent in the third quarter. An overdue inventory build was a major positive in the third quarter with, however, residential investment and especially net exports both weaknesses. Consumer spending, at 3.5 percent, was strong. The GDP price index is seen at 1.8 percent which would be unchanged from the third quarter.

Pending Home Sales Index for December

Consensus Forecast, Month-to-Month Change: 0.1%

Consensus Range: -0.4% to 0.4%

A small bounce is the forecast for December pending home sales which are expected to increase 0.1 percent after tumbling 0.7 and 2.6 percent in the last two reports. Pending sales were down a year-on-year 7.7 percent in the November report, a bit above the 6.8 percent decline in final resales.

Federal Funds Target for January 29 & 30 Meeting

Consensus Forecast, Midpoint: 2.375%

Consensus Range: 2.25% to 2.50%

Lack of inflation along with slowing global growth not to mention risks from the government shutdown are expected to keep the FOMC from raising rates at the January meeting. Forecasters see the federal funds target holding to a range between 2.25 and 2.50 percent with an implied target of 2.375 percent. Based on December's FOMC forecasts, two more 1/4 point hikes are scheduled for this year. Every FOMC meeting now includes a Jerome Powell press conference with FOMC forecasts, however, still scheduled for every other meeting.

Thursday

Personal Income for December

Consensus Forecast, Month-to-Month Change: 0.4%

Consensus Range: 0.2% to 0.5%

Consumer Spending

Consensus Forecast, Month-to-Month Change: 0.3%

Consensus Range: 0.0% to 0.5%

Core PCE Price Index

Consensus Forecast, Month-to-Month Change: 0.2%

Consensus Range: 0.2% to 0.2%

Core PCE Price Index

Consensus Forecast, Year-on-Year Change: 1.9%

Consensus Range: 1.9% to 2.0%

This report may likely be delayed but personal income is seen rising a solid 0.4 percent in December while consumer spending, which has been strong, is expected to increase a moderate 0.3 percent. The core PCE price index, which excludes both food and energy, is seen posting a modest 0.2 percent monthly rise for a year-on-year rate of 1.9 percent and still just under the Fed's 2.0 percent target.

Employment Cost Index for 4th Quarter

Consensus Forecast, Quarter-to-Quarter Change: 0.8%

Consensus Range: 0.6% to 1.0%

Steady and significant pressure is expected for the employment cost index with Econoday's fourth-quarter consensus at a 0.8 percent rise. The third-quarter rate, at an actual 0.8 percent, was the strongest reading of the expansion.

Chicago PMI for January

Consensus Forecast: 62.5

Consensus Range: 59.0 to 64.0 

Easing strength is the call for the Chicago PMI with the January consensus at 62.5 vs a robust 65.4 in December that was at the very top of Econoday's consensus rang. Despite the strength, indications of easing capacity stress were a welcome highlight of the December report as supplier delivery times improved and prices paid eased.

Friday

Nonfarm Payrolls for January

Consensus Forecast: 158,000

Consensus Range: 140,000 to 183,000

Unemployment Rate

Consensus Forecast: 3.9%

Consensus Range: 3.8% to 4.0%

Private Payrolls 

Consensus Forecast: 155,000

Consensus Range: 142,000 to 175,000

Manufacturing Payrolls 

Consensus Forecast: 15,000

Consensus Range: 6,000 to 20,000

Average Hourly Earnings

Consensus Forecast, Month-to-Month Change: 0.3%

Consensus Range: 0.1% to 0.4%

Average Hourly Earnings

Consensus Forecast, Year-on-Year Change: 3.2%

Consensus Range: 3.0% to 3.4%

Average Workweek

Consensus Forecast: 34.5 hours

Consensus Range: 34.4 to 34.5 hours

Moderation is Econoday's consensus for January with 158,000 nonfarm payroll growth the call after December's extraordinarily strong 312,000 rise. The unemployment rate is seen holding steady at 3.9 percent with average hourly earnings cooling from December's 0.4 percent monthly gain but only slightly, to 0.3 percent for January. The year-on-year rate for earnings is expected to hold at 3.2 percent. Private payrolls are seen rising 155,000 with manufacturing payrolls expected to increase a solid 15,000 to extend a long run of strong gains. The workweek is seen steady at 34.5 hours. Note that classifications and adjustments for government workers may cloud this report.

ISM Manufacturing Index for January

Consensus Forecast: 54.0

Consensus Range: 53.0 to 56.8

Steady growth at a moderate rate is the call for the January ISM manufacturing index which slowed dramatically in December, especially new orders which barely managed to exceed the breakeven 50 level. January's consensus for the headline composite index is 54.0 vs December's 54.1.

Construction Spending for November

Consensus Forecast, Month-to-Month Change: 0.2% 

Consensus Range: -0.3% to 1.0%

November construction spending data have been delayed and whether December data will be posted on Friday is unknown. December's consensus is a 0.2 percent rise as was November's consensus gain. The last posting for this report was October at a 0.1 percent decline. Growth rates in this report had been to moderate to strong.

Consumer Sentiment Index, Final January

Consensus Forecast: 91.4

Consensus Range: 90.7 to 96.0

Econoday's consensus for the final consumer sentiment index for January is 91.4 which would be only slightly better than the much lower-than-expected preliminary score of 90.7. The plunge in the preliminary reading, tied to the government shutdown, was the sharpest since early in the economic cycle.