CAN’T SHAKE THIS VIRUS: The U.S. stock markets finally succumbed to the virus this week. After a mostly flat week, markets declined sharply on Friday when China’s National Health Organization reported more than 75,000 confirmed corinavirus cases and over 2,000 deaths on the mainland. South Korea reported over 200 cases. Now, even if the virus recedes, global growth is taking a hit this quarter. The Chinese economy, which affects the world economy, is suffering. Chinese auto sales decreased 92% in the first two weeks of February. Apple has warned that it will be affected as well.
EXISTING HOME SALES SLOW IN JANUARY AFTER A BIG DECEMBER: Sales of existing homes in January were 1.3% less than December according to the National Association of Realtors. However, January was the second straight month in which overall sales were substantially higher than the year before. January 2020 was 9.6% higher than January of 2019. Inventory remains a challenge. The amount of available existing homes on the market is down over 10% from a year ago. We are still recovering from the mini-slump from the end of 2018 caused by higher mortgage rates, the stock market selloff and fears of an economic slowdown.
LOTS OF NEW HOUSING: In January, housing starts (new privately-owned homes on which construction has been started) were 3.6% below December’s number. However, December’s housing starts registered at their highest level since December 2006 (the end of the bubble). Despite coming down a bit (and much less than consensus predictions), January’s housing starts were 21.4% higher than January of 2019.
MANUFACTURING STABILIZING: According to the ISM Manufacturing Index, U.S. manufacturing had been contracting for five consecutive months through December 2019. In January, the index moved back into positive territory. Early indicators (see the New York Fed’s Empire Manufacturing Survey and the Philly Fed Manufacturing Index) are that February will also see an expansion.
THE ALL-IMPORTANT U.S. CORPORATE PROFITS ARE RISING: With 86% of S&P 500 companies having reported their fourth quarter earnings, profits are up 3.1% from a year prior.
DOUBLE TROUBLE IN JAPAN LEADS TO CONTRACTION: Japan is the world’s third largest economy, and so very influential on the world stage. Effective October 1, Japan increased its national sales tax from 8% to 10%. Any rise like that will have an immediate impact on sales activity. In the fourth quarter of 2019, the Japanese economy contracted at an annualized rate of 6.3% due largely to a sharp drop in personal consumption. Japan is getting hit hard by the effects of the coronavirus, and so Japan will likely see another poor quarter of overall economic activity.