U.S. ECONOMIC TRENDS: Recap Feb 13-17, Preview Feb 21-24

Rundown of trends in U.S. economic data. Greece (last section below) still center stage.

Next up is WeeklyBasis, rate market outlook in plain English.

RECAP FEBRUARY 13-17 MARKET WEEK

Retail Sales Short Of Estimates, Auto Sales Down: January retail sales grew 0.4% after just 0.1% in December. Excluding auto sales, retail sales grew 0.7% versus December’s -0.2% ex-autos figure and the highest since March. Bloomberg reported that, contrary to auto industry figures showing improved sales, the retail sales report showed demand at auto dealers dropped 1.1% in January, the biggest decline since May. Also last week, ICSC Goldman reported chain store sales for the week ended 2/11 were -2%.

Manufacturing Streak Continues: Two key February U.S. regional manufacturing reports continued their up-trend, and both have 0 as dividing line between expansion/contraction. The Empire State Manufacturing index (New York) was 19.53, following January’s 13.48, which was the highest since June 2011 and third straight monthly gain. The Philadelphia Fed index (Eastern Pennsylvania, Southern New Jersey, Delaware) was 10.2, following January’s 7.3. This was the fifth straight monthly gain and the highest since October 2011.

Producer & Consumer Inflation Remain Flat: January’s producer (PPI) and consumer (CPI) inflation reports were tame, which helps keep rates low. Monthly PPI was 0.1% total and 0.4% ex-Food/Energy. Monthly CPI was 0.2% total and 0.2% ex-Food/Energy. January’s annual PPI was 4.1% total and 3.0% excluding food and energy. Annual CPI was 2.9% total and 2.3% excluding food and energy. All January annual (and monthly) figures were basically flat vs. December except for annual CPI (ex-Food/Energy) raised a few eyebrows. But near-term inflation still isn’t a threat because the Fed watches PCE for consumer inflation, and December’s Core annual PCE was 1.8%. Next PCE report due March 1.

Highest Homebuilder Confidence Since May 2007: The National Association of Homebuilder’s confidence index for February was 29, the fifth straight monthly gain and highest since May 2007. It was 25 in January. Good trend but still a long shot from 50+ mark that signals a healthy market—hasn’t hit that level since April 2006. Here’s how it looks 1985-Present.

Most Home Construction Since November 2008: January’s Housing Starts (aka new construction) were up 1.5% to 699k (seasonally adjusted, annualized). Three-month moving average 697k, highest since November 2008. Trend is improving but still below 1.5m needed to keep in line with population growth and scrappage, and this chart shows we’ve got a long way to go. Single Family Starts were down 1% from 513k in December to 508k in January, BUT December was revised up from 470k. The more volatile Multi-Family Starts were up 8.5% to 191k. Building Permits rose to 676k from 671k (seasonally adjusted, annualized).

Lowest Jobless Claims since March 2008: For the week ended February 11, claims for unemployment insurance fell 13k to 348k, the lowest since March 2008. Besides a couple upward weekly data blips in the past three months, claims are holding well below 400k, a threshold under which the job market is considered to be improving. Also the 4-week moving average of 365,250 is the lowest since April 2008. Good trend on these charts, but this report doesn’t count the number of new jobs created.

PREVIEW FEBRUARY 21-24 MARKET WEEK

Next week’s economic calendar is light so Greece’s debt deal will be front and center. The data we do get is housing focused. Highlights below with rate impacts.

Highest Existing Home Sales In A Year? Or Will Cancelled Deals Slow Sales?: Expectations for NAR’s January existing home sales report Wednesday range from 4.5m to 4.63m annualized. December’s 4.61m was up 5% for the month, up 3.6% since December 2010, the third straight month of gains, and the highest in 11 months. For all of 2011, existing home sales rose 1.7% to 4.26m from 4.19m in 2010. On the pessimistic side, we’ll also see if the consistently high number of cancelled deals in recent months translates into a lower sales number. For October-December, 33% of Realtors reported at least one cancelled contract. This was up sharply from 18% in September and August, and up from 9% in December 2010. Buyers still very jittery, plus loans and appraisals are tough. This report doesn’t impact rates much, but a much better report can bolster risk-on sentiment, pushing rates up.

Slower New Home Sales: New Homes Cost 28% More Than Existing Homes: Expectations for January’s new home sales Friday range from 315k-320k seasonally adjusted, annualized. December’s 307k was down 2.2% for the month, and down 7.3% since December 2010. An estimated 302k new homes were sold in 2011, 6.2% below the 2010 figure of 323k. New home sales are well below the 700k annualized needed for a healthy market. This long-term chart tells the story. It could be the pricing: median new home sales price of $210,300 is 27.84% higher than median existing sales price of $164,500 (December figures). Unlikely to move rates.

Latest In Series of Home Price Reports: The Federal Housing Finance Agency’s (FHFA) December home price report is Thursday. It showed +1% for November but -1.8% since November 2010. FHFA’s report also said home prices are down 18.8% from their April 2007 peak. But this report isn’t as widely followed—nor does it impact rates—because it’s only for homes with Fannie/Freddie mortgages, so doesn’t include a broad enough sample as home price reports from Case Shiller and CoreLogic (latest on both). The next Case Shiller report is Tuesday, 2/28.

Treasury Auctions: There are $99b in new Treasury securities being auctioned into markets as follows: $35b 2yr Notes Tuesday, $35b 5yr Notes Wednesday, $29b 7yr Notes Thursday. This new supply provides signals on overall U.S. bond market demand. Rates can rise as mortgages (and other bonds sell) on weak auction demand. But it will all hinge on mood set by Greece’s debt deal.

Job Market Optimism: As noted above, jobless claims have been falling, so if that trend continues with the weekly jobless claims report Thursday, it will encourage the risk-on sentiment, and pose some upward rate risk.

Earnings Highlights: Here are next week’s earnings (follow realtime) that give us a feel for consumer strength: Home Depot, Kraft Foods, Walmart, Macy’s, RadioShack, Saks, Steve Madden, Dell, Hewlett-Packard, TJX, MGM Resorts, Limited Brands,Toll Brothers, Dollar Tree, William Cos, Hertz Global, Kohl’s, Target, Liberty Media, Safeway, Dish Network, Echostar, Gap, Live Nation, TiVo, Healthsouth, Hormel, Echostar, JCPenney, Washington Post.

Greece Debt Deal Reaction: Most stats above show signals of U.S. recovery but near-term rate sentiment remains all about Greece. To secure 130b euro ($172b) more in bailout funds, part of which will cover 14.5b euro in bond payments due March 20, Greece has agreed to the following in the last week: cut minimum wage 22%, layoff up to 15,000 state workers, cut pensions 12%, and cut 325m euro from their budget. Bailout funds are also predicated on Greece finalizing months-long negotiations on losses private investors will take as they swap existing bonds for new lower-yielding bonds. Longer-term, all this austerity is probably not the path to fiscal sustainability and the bailout cycle may just continues, but a bailout could lead to higher shorter-term U.S. rates as investors sell mortgage bonds and buy riskier assets. That question (and trade) will play out early this week as we learn details of today’s summit.

RATE & STOCK OUTLOOK

Don’t miss WeeklyBasis, short and sweet outlook on next week’s rate and stock markets.

And I’ll also do some good Greece links in a bit.