The Texas Manufacturing General Business Activity Index slipped 2.3 points in December to 9.7. It was the second straight decline to a four-month low, as rising COVID cases and waning stimulus impacted the sector. Survey respondents also cited political uncertainty as a concern, both with respect to the incoming Biden Presidency, as well as actions with the current administration. The new COVID relief package, which was signed after the survey window, should placate some of these concerns. Despite the decline in the Business Activity Index, most other indexes posted solid gains in December, indicating that the recovery remains firmly intact. Production and new orders growth accelerated, while capacity utilization increased. Employment and wage growth also picked up from the prior month. All future activity indexes remained positive, but some key indexes, such as future new orders and business activity, declined. Price pressures mounted, as the raw material and finished goods price indexes both rose to two-year highs. Future prices also picked up.
Existing home prices continue to increase
The S&P CoreLogic Case-Shiller National Home Price Index surged a record 1.7% in October, and posted an 8.4% y/y gain, the most since March 2014. The increase was widespread across the country, with all of the 19 metro areas for which data was available rising from the previous month. Additionally, a majority of metro areas registered faster y/y growth rates than in the month before. But the 10-city and 20-city composite indexes advanced less than the national index, up 7.5% y/y and 7.9% y/y, respectively. This suggests that demand has firmed more in smaller urban, suburban, and rural areas than in major urban areas, confirming a shift in housing demand that has emerged in the aftermath of the COVID lockdowns earlier this year.
Regional manufacturing activity mixed-to-positive
The ISM Chicago Business Barometer edged up 1.3 points in December to 59.5, above the consensus of 56.0, a sign that factory activity in the region improved modestly. It was led by a notable climb in the employment indicator to a one-year high, although it failed to return to expansion territory. Order backlogs advanced for the second consecutive month, which could lead to more hiring in the near-term. Production ticked up, but new orders growth eased. Inventories rose to a seven-month high.
All six regional manufacturing indexes we follow were in expansion territory in December, but only half improved from the previous month. Combined with the modest downtick in the Markit flash U.S. Manufacturing PMI, this suggests that the ISM Manufacturing Index will continue to indicate factory activity growth at yearend, although the pace could be slower.
Pending home sales down modestly
The pending home sales index fell 2.6% in November, its third consecutive decline, and worse than the consensus for a 0.3% pullback. Activity weakened in all four regions. The NAR attributed the modest slide in contract signing in the past few months mostly to inventory shortages and fast-rising home prices.
But overall momentum is still strong. Compared to a year ago, pending sales were up 16.4%, and all four regions posted double-digit y/y gains. While mortgage rates could see some modest upward pressure next year, the report noted that housing demand should remain well supported by fiscal stimulus and economic growth. The NAR expects existing home sales to increase roughly 10% in 2021, and new home sales to increase about 20%.
Advance goods trade deficit widens
The advance goods trade deficit spiked by $4.4 billion in November to $84.8 billion, a record level. Exports picked up 0.8%, led by food. But imports increased a larger 2.6%, led by consumer goods. On a 12-month total basis, the trade deficit crept up to $883.3 billion, close to a record. The widening suggests that net exports will likely subtract from GDP growth in Q4.Jobless claims decelerate but remain painfully elevated
Weekly initial jobless claims came in at a level of 787,000 for the week ended December 26, below the Bloomberg consensus estimate of 835,000, and compared to the prior week's upwardly-revised 806,000 level. The four-week moving average rose by 17,750 to 836,750, while continuing claims for the week ended December 19 fell by 103,000 to 5,219,000, south of estimates of 5,370,000. The four-week moving average of continuing claims fell by 77,000 to 5,457,250.