Economic Reports: Week ending Jan. 22, 2021

Mortgage applications decline 

The MBA Mortgage Application Index decreased by 1.9% last week, following the prior week's 16.7% jump. The pullback came as the Refinance Index fell 4.7% to more than offset a 2.7% gain for the Purchase Index. The average 30-year mortgage rate increased 4 basis points (bps) to 2.92%.

Builder confidence off slightly 

The NAHB/Wells Fargo Housing Market Index (HMI) slipped three points in January, down for the second straight month, to 83, below the consensus of 85. All three index components fell, led by reduced prospective buyer traffic. The report noted that the surge in lumber prices and the relentless increase in COVID cases weighed on builder confidence, amid ongoing concerns about the dearth of affordable lots and skilled labor, as well as increased regulatory uncertainty. 

Even so, the HMI remains close to a record high level, indicating elevated builder confidence, which bodes well for the near-term outlook for housing starts. 

More weakness in architecture billings 

The Architecture Billings Index (ABI) fell 3.7 points in December to 42.6, a four-month low, and in contraction territory for the tenth consecutive month. The index has partially recovered since its low in April, but its recent readings suggest a renewed decline in the demand for design service and continued weakness in nonresidential construction spending in 2021. Demand was weaker across sectors and regions. 

Amid forward looking indicators, the Project Inquiries Index ticked up slightly, but the Design Contracts Index edged deeper into negative territory, implying that future demand is mixed-to-lower. 

ATA truck tonnage ends 2020 strong 

The ATA For-Hire Truck Tonnage Index jumped 7.4% in December, up in three of the past four months, and surpassing its previous high that was reached in March 2020. The index was also up 2.3% from a year ago. The increase in freight activity reflects the ongoing economic recovery from the pandemic and the recession, retail inventory restocking, and a pickup in homebuilding. The report noted that with fiscal stimulus already in place, and more likely coming in the near future, truck freight volume is expected to continue rising. 

Jobless claims slow, housing construction activity strong

Weekly initial jobless claims came in at a level of 900,000 for the week ended January 16, below the Bloomberg consensus estimate of 935,000, and compared to the prior week's downwardly-revised 926,000 level. The four-week moving average rose by 23,500 to 848,000, and continuing claims for the week ended January 9 fell by 127,000 to 5,054,000, south of estimates of 5,300,000. The four-week moving average of continuing claims declined by 67,000 to 5,126,250.

Housing starts for December rose 5.8% month-over-month (m/m) to an annual pace of 1,669,000 units, above forecasts of 1,560,000 units, and compared to November's upwardly-revised pace of 1,578,000 units. Also, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, grew 4.5% m/m at an annual rate of 1,709,000, north of expectations of 1,608,000 units, and compared to the unrevised 1,639,000 unit pace in November.

Regional manufacturing jumps

The Philly Fed Manufacturing Index unexpectedly jumped further into expansion territory (a reading above zero) for January, rising to 26.5 versus estimates to tick higher to 11.8 from December's 11.1 level. Growth in new orders, shipments and employment all accelerated sharply.

Existing home sales top estimates

Existing home sales ticked 0.7% higher month-over-month (m/m) in December to an annual rate of 6.76 million units, versus expectations of a decline to 6.56 million units from November's upwardly-revised 6.71 million rate. Existing home sales are up 22.2% y/y.

Of the four major regions, the Northeast and South experienced m/m sales gains, while sales in the Midwest were unchanged and fell in the West. All regions saw sharp gains y/y. Sales of single-family homes and purchases of condominiums and co-ops were both up m/m and y/y. The median existing home price was up 12.9% from a year ago to $309,800, marking the 106th straight month of y/y gains as prices rose in every region. Unsold inventory posted an all-time low of a 1.9-months pace at the current sales rate, down from 2.3-months in November and the 3.0-months pace a year earlier. Existing home sales reflect contract closings instead of signings and account for a large majority of the home sales market.

National Association of Realtors Chief Economist Lawrence Yun said, "Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic," adding that "What's even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market." Yun also noted that, "Although mortgage rates are projected to increase, they will continue to hover near record lows at around 3%," and he expects economic conditions to improve with additional stimulus forthcoming and vaccine distribution already underway.

Oil prices pause over demand worries

Oil posted some losses at the close of the week, with Brent dipping back below $55 per barrel and WTI down below $52. More travel restrictions in Hong Kong, Shanghai, and the UK led to demand pessimism, and a temporary jump in the dollar also weighed on crude.

Biden’s first actions on energy. As expected, President Biden signed a litany of executive orders related to energy and climate, including canceling Keystone XL, rejoining the Paris Climate Agreement and beginning the process of undoing a long list of regulatory actions under the Trump administration.

Chamber, API open to methane regulations. The Chamber of Commerce and the American Petroleum Institute (API), the most powerful business and oil lobbies in the U.S., respectively, said that they were open to the reimplementation of methane regulations on oil and gas operations, after supporting a rollback in the Trump era. The industry has long supported voluntary actions only. “This is a new position for API, but we think given where the industry is at this time and the continued importance of reducing methane, it was critical we update this position as the administration changes,” API CEO Mike Sommers told the Washington Examiner.

OPEC looks to build ties with Biden. OPEC’s secretary general said that the group will seek to strengthen its relationship with the Biden administration, although thorny questions over the Iran nuclear deal and climate change loom.