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

Friday, January 17, 2020

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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 weeks 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, Bloombergs 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 Oxfords 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 Novembers 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. Thursdays 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 Decembers 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.

Story continues

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

Which arent bad problems to have.

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

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)

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Editors 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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The economy is continuing to catch up to the stock market: Morning Brief - Yahoo Finance