Return from Thanksgiving

I went ahead and skipped the end of last week in observance of the holiday, but now I'm back. Despite my absence, we had a number of releases on Wednesday of last week (a few were moved up from Thursday—thanksgiving). November 25 releases included personal income, personal spending, Personal Consumption Expenditure Prices (alternate measure of inflation), Initial Claims, Durable orders, Michigan Sentiment revision, and New Home Sales. Before I begin breaking these releases down, I want to say that this is the first time I'm optimistic about the future. It's not that any one of the releases is positive, but that the entire set is positive.

Starting with personal income and spending, this is generally a rather unimportant release. This may seem counterintuitive, but consider that all month we get releases that form the components of this one. Most of the time when this release comes out, it merely summarizes what we already know. However, this report shows personal income growing at twice the rate expected (.2% rather than .1%) and personal spending growing at .7% (up from last months -.6%). These numbers are great news.

Personal Consumption Expenditure (also PCE) is an alternative measure of prices. The traditional measures, CPI and PPI, watch the prices of a basket of goods. PCE measures prices based on what people are buying. It doesn't break down prices changes into different parts like CPI and PPI do, but it more properly weights the effect of certain changes on people's lives—who cares if the price of a typewriter increased 300% in october, does that really affect your price level? The PCE reading came in at .2%, in line with a 2.4% annual inflation rate. This is a solid number, and the level that the fed typically aims for.

Initial Claims dropped to 466,000, much more than expected. This is a huge movement and puts us within spitting distance of the 450,000 marker that signals stagnation (rather than contraction). This is unbelievably good news.

The Michigan Sentiment Revision (an alternate measure of consumer confidence) came in at 67.4 an upward revision of this month's earlier number of 66, and again more than expectations. However, even with the revision, this month's number is a decrease from last month's 70.6 and September's 73.5. That being said, the revision is about as good as we could have hoped for with this release (revisions rarely to never vary much from their preliminary).

There's not much to report in the housing market, other than sales are continuing. Existing Home Sales (out last Monday) and New Home Sales (out last Wednesday) both showed increases, and both beat expectations. It's likely there is a fair amount of noise in this number due to the housing tax incentive expiration (it has now been extended).

The last piece of information released last week is durable orders. In October durable orders fell -.6%. While on the surface this is bad news, if we pull apart the data we find a silver lining. Durable orders consists of 2 parts: Defense orders and Nondefense orders. The significance is that defense orders in no way represent consumer demand for durable goods. This release had new defense orders down 18.4% and new nondefense orders up 1.2%. While this isn't as good as a positive overall (which would be good news from manufacturers and consumers), this is a good release for consumer demand.

In conclusion, people are making more and spending more, the housing market may be stablizing, employment is showing signs of quickly leveling off, inflation is still well under control, and to top it all off releases exceeding expectations means that the recovery is moving faster than the market had expected—we are likely in for steady increases in the market in the upcoming future. I don't want to be overly bullish, but it's hard not to smile when the data comes in this good.

Since I didn't review it last week, I'm moving the recession clock to 3 minutes to midnight.