Economic news

Economic news was mostly positive this past week except for housing. Both existing home sales and new home sales dropped sharply in December. Existing home sales plunged 16.7% to a seasonally adjusted annual rate of 5.45 million, from 6.54 million in November. The decline is the largest on record. However, December sales were up 15% compared with December 2008. New home sales in December fell 7.6% and were down 22.9% for the year. Both drops in existing and new home sales appear to be the cause of the first time homebuyer tax credits taking sales away in later months.
Consumer confidence beat estimates and rose to its highest level since September 2008. The index improved in January to 55.9 from 53.6 in December. The present situation assessment, however, continues to remain near historic lows. Consumer sentiment also improved in January to 74.4 from 72.5 in December. This is the highest reading since January 2008. On Wednesday, the FOMC left rates unchanged and maintained its view that conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” The biggest news of the statement was that Kansas City Fed President dissented, preferring that the Fed drop the “extended period” language. Hoenig sees the economy and financial markets improved enough that exceptionally low rates are not needed for long.
On Thursday, December durable goods orders were softer than expected but ex transports were a touch better than expected. Also, Bernanke was confirmed with a 70-30 confirmation vote. It was the poorest showing ever by a nominee for Fed Chairman but was still a victory for Bernanke. And on Friday, fourth quarter GDP grew at a much higher than expected rate of 5.7%. This was the strongest growth rate in more than six years. About two-thirds of the growth however, was boosted by smaller inventory reductions. Overall, the report shows that the economy is in moderate recovery.
Although much of the economic data was positive, equities were down for the week. For the month of January, the Dow was down 3.5%; the S&P, down 3.7%; the Nasdaq, down 5.4%; and the Russell, down 3.7%. Treasury yields were little changed net for the week.
Have a great weekend