Pending home sales was reported today to be at the highest level in over a decade. The strongest regions are the west and the south. This extremely strong report along with the very strong new home sales report from Tuesday show the housing market is much stronger than previous thought. A strong housing market is very bullish for the economy in general. It shows that buyers are comfortable making a large purchase which reflects positively on just about all other spending categories as well as construction.
The NAR attributes the strength in the housing market to low mortgage rates and a strong job market. Mortgage rates are hovering around all-time lows, below 4%. The job market has been good as far as the number of jobs created, but there are some complaints on a lack of wage growth. This was a very bullish report. My favorite housing plays are Apogee (APOG) and Acuity (AYI). Apogee manufactures glass exteriors for sky scrappers. Acuity makes LED lighting sold at Home Depot ($HD).
A huge jump in new home sales was some really positive data today. New home sales came in way above expectations reversing several months of flat and weaker-than-expected reports. The number of new homes sold in April jumped to 619,000, easily eclipsing the previous post-recession high of 549,000 from February 2015. This report helped the market sentiment overall today and particularly helped the home builder stocks. I still like my two favorite housing-related picks, Apogee (APOG) and Acuity (AYI). Apogee makes sky scrapper windows and Acuity makes lighting sold at Home Depot (HD).
5/16/2016 0 Comments
The strongest industry in the April retail sales report is the non-store retailers, Amazon being the largest. The weakest industry being department stores. Although this is making a lot of press recently, this is not a new phenomena, but it seems to have finally come home to roost for the department store stocks. If you look at department store sales, they are the mirror opposite of the e-commerce sales. In fact, the peak for department store sales was January 2001. Back then, department store sales were 33% higher than non-store retailers at $19.9B for the month. If you zoom out in the graphs below, this move to online shopping has been consistent and has been putting the hurt to the department stores for years.
According to the numbers in the April retail sales report, non-store retailer sales are almost 3.5x as large as department store sales at over $45B.
Amazon is reported to be the second largest apparel retailer behind only Wal-Mart. How long before Amazon takes the top spot?
Initial claims had a big increase for the week of April 30, although the level of claims is still historically low. The job market is showing signs of slowing with the lower than expected NFP report and higher initial claims. A few more weak data points are needed to be certain.
Construction spending firmed in March reported the U.S. Department of Commerce today. The strength of the report was in the large upward revision to February's number, revised from -0.5% to 1.0%. March construction spending was up 0.3% from the higher February number. This strong construction spending number is a good sign for APOG, which makes and installs windows for skyscrapers. This positive construction data along with the strong pending home sales data from last week paint a picture of a firming housing market.
Michael Grove, CFA