Morning Report: GDP rose 2.9% in the fourth quarter

Vital Statistics:

S&P futures4,048 16.50
Oil (WTI)81.391.21
10 year government bond yield 3.51%
30 year fixed rate mortgage 6.13%

Stocks are higher this morning after the GDP print. Bonds and MBS are up.

GDP rose 2.9% in the fourth quarter, according to the BEA. Consumption rose 2.1%, while investment increased 1.4% and government spending rose 3.7%. Inventory build particularly in the natural resource sector was a driver of the increased GDP print. Housing services (i.e. home price appreciation and owners equivalent rent) pushed up GDP while actual residential construction was a drag.

The PCE price index (the Fed’s preferred measure of inflation) rose 3.2% compared to 4.8% in the prior quarter. Excluding food and energy, the price index rose 3.9% versus 4.7%.

The Atlanta Fed’s GDP Now estimate has been out of step with the Street all quarter and I guess the Street was right. The housing services component will fade into the background as home price appreciation stagnates.

New home sales rose 2.3% MOM to a seasonally-adjusted annual pace of 616,000 last month, according to the Census Bureau. This is down 26.6% on a year-over-year basis. For the year, an estimated 644,000 homes were sold in 2022, which was a 16.4% decline from 2021. There were 461,000 homes for sale at the end of December, which represents a 9 month supply. Generally speaking 6 months is considered a balanced market, so the builders have inventory to go. This makes sense since we have seen a pretty big uptick in the cancellation rate from the builders. They will probably have to cut prices or offer incentives to move the merchandise during the Spring Selling Season which begins in the next few weeks.

Rounding out the economic news of the day, Durable Goods orders rose 5.6% in December, driven primarily by transportation equipment. Excluding transportation durable goods orders fell 0.2%. Initial Jobless Claims fell again to 186,000 an exceptionally low number. Despite the headlines about tech layoffs, we aren’t seeing any increase in the numbers. If anything they are falling. The Chicago Fed National Activity index showed the economy is still growing well below trend, notwithstanding the GDP print.

Goldman Sachs sees a 2008-style decline in 4 major cities, including Phoenix, San Jose, San Diego and Austin, TX. The bank sees declines of around 25% for these MSAs. Note that such a decline would still put them above pre-pandemic levels given the insane appreciation we saw there over the past two years.

“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely. That said, overheated housing markets in the Southwest and Pacific coast, such as San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA will likely grapple with peak-to-trough declines of over 25%, presenting localized risk of higher delinquencies for mortgages originated in 2022 or late 2021,” writes Goldman Sachs.

11 Responses

  1. I suspect this would not have been allowed on the old Twitter:


  2. Brent,
    Even the Atlantic doesn’t buy the “hedge funds are buying up all the houses” story:

    “Meet the Latest Housing-Crisis Scapegoat

    Blaming the housing crisis on hedge funds and private equity may be easy, but it’s dead wrong.

    By Jerusalem Demsas”


    • I think American Homes 4 Rent is the biggest single family rental REIT and I think they have 57,000 homes in their portfolio. That compares to existing home sales with a seasonally adjusted annual rate of 4.1 million. The vast majority of landlords are mom-and-pop types with 2 or 3 properties.


  3. This poor guy…he needs to leave Colorado. The way the state has repeatedly gone after this guy is proof positive that anti-discrimination laws are not designed to protect anyone, but are instead designed to persecute people who engage in wrong-think. We are living in Orwellian times.


    • This does seem to provide a clean case for the Supreme Court to finally put an end to it:

      “The same day that the Supreme Court ruled in his favor in a similar case in 2018, Phillips’s shop was approached by transgender activist Autumn Scardina who deliberately stated intent to “correct the errors of [Phillips’] thinking.” Scardina wanted Phillips to make a custom pink cake with blue icing to celebrate a “gender transition.” Scardina also requested a cake with “an image of Satan smoking marijuana.””


      • Hopefully you are correct. They avoided deciding it the last time, but the makeup of the court is different now.


        • It’s also obvious from the activist’s own words that this isn’t about discrimination but about forcing compliance with an ideology.


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: