Summary for Week ending Dec 21st

The economic data released this week was encouraging.  The November Personal Income and Outlays report suggests PCE might increase over 2% in Q4 - not great, but higher than most forecasts.

The housing numbers were solid.  Housing starts are on pace to increase about 25% this year, and, for existing homes, inventory is down sharply and conventional sales up. 

Other positives include Q3 GDP being revised up, the highest Architecture Billings Index since 2007, a rebound in the trucking index, a decline in the 4-week average of initial weekly unemployment claims, and another increase in builder confidence.

Manufacturing was still weak, but two of the three regional surveys were slightly better than expected.  A negative was consumer sentiment, and that is probably related to the "fiscal cliff" debate in Washington that is still showing no signs of progress. I expect an agreement, but not until early January (although it could happen sooner). Next week will be a light week for economic data, but there are two key housing reports - new home sales and Case-Shiller house prices.

Here is a summary of last week in graphs:

' Housing Starts at 861 thousand SAAR in November

Total housing starts were at 861 thousand (SAAR) in November, down 3.0% from the revised October rate of 888 thousand (SAAR).

A few key points:

' Housing starts are on pace to increase about 25% in 2012. This is a solid year-over-year increase, and residential investment is now making a positive contribution to GDP growth.

' Even after increasing 25% in 2012, the approximately 770 thousand housing starts this year will still be the 4th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the three lowest years were 2009 through 2011). Starts averaged 1.5 million per year from 1959 through 2000, and demographics and household formation suggests starts will return to close to that level over the next few years. That means starts will come close to doubling from the 2012 level.

' Residential investment and housing starts are usually the best leading indicator for economy. Nothing is foolproof, but this suggests the economy will continue to grow over the next couple of years.

This was slightly below expectations of 865 thousand starts in November.