New home sales ticked up in November to the second-highest level since the financial crisis, while consumer confidence hit a 12-year high in a University of Michigan survey, suggesting that President-elect Donald Trump is inheriting a basically sound economy.
Builders like (PHM) sold single-family homes at an annual rate of 592,000 during the month, the Census Bureau reported. That's up from 563,000 in October and narrowly beat forecasts of about 580,000 in a survey by Econoday.
New home sales, which create about four new jobs per residence, peaked at nearly 1.4 million in 2005 and plummeted to 270,000 after the financial crisis as unemployment hit 10% and mortgage credit dried up. The average price of a new home sold last month was $359,400, the Bureau said.
Researchers at Michigan credited Trump's election for a jump in consumer confidence, but said that surge appears to have crested in the past few weeks. The university's consumer sentiment measure jumped 4.7% since November to a reading of 98.2, with solid gains in measures of how consumers see the current state of the economy and how they expect it to be doing in six months. Economists had expected the sentiment number to be 98.0.
"While the surge in confidence following Trump's surprise election ended by mid-December, it nonetheless led to the highest level of the Sentiment Index since January 2004," Richard Curtin, chief economist of the Michigan survey, said in a statement. "Compared with the rapid gains made in late November and early December, the Sentiment Index was barely higher than at mid-month and barely higher than the January 2015 peak."
He said an all-time record number of consumers, 18%, "spontaneously mentioned the expected favorable impact of Trump's policies on the economy."
The strong measures are a departure from recent data, which have shown prospects for fourth-quarter growth weakening. Stocks of retailers like Target (TGT) and Best Buy (BBY) have been hard hit, even as giant Wal-Mart (WMT) has held steady and discounter Costco (COST) has actually seen shares rise.
Estimates of fourth-quarter growth have been falling, with a number of forecasters, including those at the New York Federal Reserve Bank, suggesting it will dip below a 2% annual rate after the economy grew 3.5% in the third quarter.
The move in consumer sentiment probably reflects the stock market's gains since the election, since the Michigan survey is sensitive to stock prices, Moody's Analytics economist Ryan Sweet said.
"The improvement in the collective psyche since the presidential election is welcome, but it lends only some modest upside to our near-term forecast for the U.S. economy," Sweet said in an e-mail. "The reasoning is that sentiment can be fickle and that there have been instances when confidence measures have sent false signals about changes in the economy."
Higher confidence will do battle with higher mortgage rates in the housing market, Sweet said. Moody's expects higher rates to keep fourth-quarter 2017 home sales about 1.8% lower than they would have been otherwise, he said.
A more bullish view came from economists at Wells Fargo, who pointed to the number of consumers who expect their personal income to rise over the next year.
"The number of survey respondents who reported that they expect higher income over the next year rose to 50.4%, the highest reading since December of 2015," Wells economist Michael Brown said in a note to clients.
"Greater income growth prospects for consumers serves as a good leading indicator of real spending activity. We expect real spending activity will continue to serve as a solid support to GDP growth in 2017, expanding around 2.6%."