LIVE MARKETS-Looking for "just right": Home sales, flash PMI, UMich

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LOOKING FOR "JUST RIGHT": HOME SALES, FLASH PMI, UMICH

Investors wrapped up a data-light, holiday-shortened week with three bits of data which, like the three bears' porridge, ran hot, warm and cold.

Sales of pre-owned homes USEHS=ECI rose by 2.2% in December to 4.24 million units at a seasonally adjusted annualized rate (SAAR), according to the National Association of Realtors (NAR).

The number landed 1.2% higher than consensus and stands on the shoulders of November's solid 4.8% increase.

Year-over-year, existing home sales are up 9.3%, the most robust annual gain since June 2021.

Consequently, the inventory of unsold homes on the market fell 13.5%. At last week's sales pace, it would take 3.3 months to sell every home that's for sale, the lowest months supply since last March.

"Home sales in the final months of the year showed solid recovery despite elevated mortgage rates," writes Lawrence Yun, NAR's chief economist. "Home sales during the winter are typically softer than the spring and summer, but momentum is rising with sales climbing year-over-year for three straight months."

Even so, those elevated rates have dented sales.

As outpointed by Carl Weinberg, chief economist at High Frequency Economics, "existing home sales for the year were their lowest in 30 years."

Separately, S&P Global released its advance current month "Flash" purchasing managers' indexes (PMI) for the manufacturing and services sectors .

First, manufacturing activity USMPMP=ECI showed a stronger-than-expected improvement, gaining 0.7 points to land at 50.1, stepping barely over the border into expansion territory.

Analysts called for a more languid 0.3-point improvement, which would have signified a slight contraction from December.

PMI readings above 50 indicates monthly expansion, below that level means contraction.

As for services USMPSP=ECI, the sector lost more momentum than economists predicted, dipping 4 points to a still-expansive 52.8.

Combined, the two indexes comprise a 52.4 composite print.

"US businesses are starting 2025 in an upbeat mood on hopes that the new administration will help drive stronger economic growth," says Chris Williamson, chief business economist at S&P Global. "However, rising price pressures are a concern, with companies reporting supplier-driven price hikes as well as wage growth amid poor staff availability."

Finally, the American consumer isn't quite as cheery this month as originally thought.

University of Michigan (UMich) produced its final take on Consumer Sentiment USUMSF=ECI, which unexpectedly landed 2.1 points lower than the original take release a few weeks ago.

Survey respondents' assessment of current conditions deteriorated by 5.0%, while near-term expectations cooled by 1.3%.

Both components continue to languish at the levels to which they plummeted in the immediate aftermath of mandated pandemic shutdowns.

"Disappointment in the stickiness of near-term inflation is likely the main culprit for a dip in consumer sentiment," says Jeffrey Roach, chief economist at LPL Financial.

Speaking of which, participants still see inflation at 3.3% a year from now, but 5-year inflation expectations cooled a tad, to 3.2% from 3.3%.

As a reminder, the most recent reading of core CPI, released last week, was 3.2%.

The graphic below shifts UMich one-year inflation expectations forward 12 months and maps it against current core CPI, in order to see how predictive the metric is.

The answer is "not very," but high inflation expectations can affect consumer behavior, prompting them to buy now rather than later, causing an uptick in demand and, ironically putting upward pressure on prices.

(Stephen Culp)

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