Tuesday, November 20, 2012
The French rating downgrade reminds investors about the still
unresolved Euro-zone situation and will likely take the sheen off
the market's optimistic view of the 'Fiscal Cliff' situation over
the last two trading sessions. Offsetting the French overhang
today is the very strong October Housing Starts report, providing
another reassuring look at the improving housing scene.
In corporate news,
) reference to accounting 'improprieties' related to its Autonomy
acquisition drown out everything else in its quarterly report.
The PC maker's earnings numbers are not that bad. But the mere
mention of accounting issues prompts investors to flee.
) also came short of expectations in its earnings report.
The October Housing Starts data came in better than expected, up
3.6% to a seasonally adjusted annual rate of 894K (872K). The
prior month's Starts tally was modestly revised down to 863K from
872K. Permits were roughly in-line with expectations, coming in
at 866K vs. permits level of 890K in September (revised lower
from 894K originally reported). Single-family permits increased
to the highest level since July 2008, while multi-family permits
dropped. On the Starts front, single-family starts modestly
declined from the preceding month's pace, while multi-family
starts increased 11.9%. Two of the four regions showed gains,
with the West showing a 17% jump and the Midwest increasing by
8.9%. Starts were down 6.5% in the Northeast and 2.5% in the
South. Sandy reportedly had minimal impact on the data.
Monday's homebuilder sentiment report for November and the
Existing Home sales report for October showed similar strength,
with sales reaching their highest level of the year to the
seasonally adjusted annual rate of 4.79 million. This was the
16th consecutive monthly gain in sales, with the October tally up
2.1% from the preceding month and 10.9% from the year before. The
gains have started to show up in positive momentum in median home
prices and a drop in available-for-sale inventories. About a
third of the October sales represented homes that had been on the
market for a month or less, while current inventories are the
lowest since February 2006.
The level of the homebuilder sentiment index has historically
showed a strong correlation with Housing Starts data. Some
analysts estimate that the current level of the index is
consistent with housing starts that are double the current pace.
This implies significant upside potential to construction
activities even if the sentiment indicator levels off in the
coming months. This bodes well for the contribution of
residential construction activities to economic growth in the
coming quarters, partly offsetting the slowdown in manufacturing
and exports. Bottom line, housing has emerged as a bright spot
for the U.S. economy.
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