Raymond James’ Scott Brown: Existing home sales have potential to surprise

Unlike the numbers for January, any data showing lackluster home sales in February can't be fobbed off on the weather

The following is a daily market commentary by Scott J. Brown, chief economist and senior vice president of equity research at Raymond James & Associates Inc.
Monday: After all the rhetoric and hand-wringing, the health care bill’s passage did not hurt the stock market.
The House approved the Senate version of the healthcare bill, as well as changes to it, in a vote late Sunday evening.
The stock market opened lower, but quickly regrouped, finishing broadly higher. The bond market ended higher on shortcovering. For the financial markets, the one major plus in the health care bill’s passage is that the major uncertainty (whether it will pass or not) is out of the way. (View economic releases.)
The Chicago Fed’s National Activity Index, a composite of 85 economic indicators, slipped in February, likely reflecting the impact of poor weather. Components of the index fall into four general categories. Over the last several months, the sub-index on production and income has moved well into positive territory, as did the sub-index for sales, orders, and inventories. The sub-index on employment and hours had been nearing the breakeven level, while the sub-index on personal consumption and housing has lagged far behind. (View Chicago Fed national activity index components.)
The Federal Reserve’s household debt service ratio, an estimate of the ratio of debt payments (interest plus a certain amount of principal) to disposable personal income, continued to fall in the fourth quarter. The financial obligations ratio, which also includes auto lease payments, tenant-occupied rental payments, homeowner’s insurance, and property taxes, also fell further. These data suggest, no surprise, some consolidation in household balance sheets. There’s no evidence that these trends were near an end in 4Q09. However, the savings rate may have begun to stabilize in 1Q10 (it’s hard to say for sure s ince the weather may have had some impact). (View financial obligations ratio.)
Gasoline prices rose again this week, up five weeks in a row (+42.5% y/y). The average for March is tracking at roughly +4.5% relative to February. Note that in the March Consumer Price Index, the Bureau of Labor Statistics’ seasonal adjustment will be expecting a 5.3% increase in retail gasoline prices (in addition, 5.5% in April and 6.2% in May).
Today: Existing home sales have some potential to surprise. Treasury will auction 2-year notes in the early afternoon.
The National Association of Realtors’ data measures closings (as opposed to new home sales, which measure initial transactions). January’s weather could be a factor in the February sales figure, but February’s weather? Not so much. If we do get a surprise, market reaction should be relatively limited.
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