Article / 28 January 2014 at 6:31 GMT

3 Numbers to Watch: UK GDP, US durable goods & Case-Shiller index

editor/analyst /
United States

• UK Q4 GDP expected to confirm economic strength
• US December durable goods orders seen rising 1.6%
• US home price data awaited amid some bubble talk

There are several key economic reports scheduled for Tuesday, including the first official estimate of UK GDP for last year’s fourth quarter. We’ll also see new numbers for the US on durable goods orders and the latest monthly estimate for residential real estate prices via the S&P Case-Shiller Home Price Index (HPI).

UK GDP (09:30 GMT): The crowd’s looking for official confirmation that Britain’s economy is as strong as it appears, based on a run of good economic numbers lately. Today’s first estimate of fourth-quarter GDP from the government is expected to satisfy. Analysts predict an increase of 0.7 percent for last year’s final quarter vs. the previous three-month period. That’s also the current estimate from the National Institute of Economic and Social Research. What's behind the growth? “The United Kingdom has been buoyed by easier credit conditions and increased confidence,” the International Monetary Fund said in last week’s update of its World Economic Outlook.

 UK economy has been underpinned by confidence and easier credit conditions
Photo: Sean Randall /

Today’s GDP release will test that view with hard data that could be the day’s main event for macro news. The question is whether Britain’s economic recovery is strong enough to move the Bank of England (BoE) to raise interest rates sooner than expected? A faster-than-projected rise in today’s GDP report would certainly fuel speculation on that front. Although the consensus forecast sees a 0.7 percent advance for today’s number, as usual there’s a wide range of individual estimates around the median prediction—as high as 1.0 percent, according to Bloomberg’s latest survey of economists.

Mark Carney, the BoE governor, seems to be downplaying the potential for upside surprises. Speaking at the World Economic Forum in Davos last week, he said that “as good as the numbers have been in the last three quarters in the United Kingdom, we’re talking about three-quarters of household-led growth, an economy that’s running 20 percent below pre-crisis trends, that has substantial spare capacity, that has not yet rebalanced and that faces significant headwinds from its major trading partner from overall monetary conditions.” Translated: today’s GDP data would have to be unusually strong to move the BoE to change its current policy of keeping interest rates unchanged for the foreseeable future.


US Durable Goods Orders (13:30 GMT): Today’s report is the last major release of hard macro data ahead of Thursday’s “advance” GDP estimate for 2013’s fourth quarter. In the November update, demand for durable goods perked up, with new orders rising 3.4 percent versus the previous month. But this is a noisy indicator and so it’s essential to watch the year-over-year trend for a more reliable measure of the trend. The good news is that the annual pace for new orders looks comparatively robust in recent history, with the appetite for manufactured goods posting healthy gains on an annual basis for each of the past four reports.

But in the wake of yesterday’s weak news on new home sales, there’s still reason to wonder if 2014 will bring stronger growth overall, as some analysts have been predicting. Demand for newly constructed single family tumbled nearly 11 percent in December versus the previous month, the biggest monthly setback since July. Even worse, the year-end slump follows a moderately weak November. But the far-larger market for existing home sales had a better December and so the new-sales data may not be as dark as it appears. In addition, the broad trend across a range of indicators still looks favourable, as I discussed last week. Nonetheless, with the US stock market suffering a sharp correction in recent sessions, another soft number in today’s durable goods report won’t be easily dismissed.

The best guess of economists, in fact, thinks we’ll see a decent if unspectacular increase in today’s monthly update. The consensus forecast anticipates new orders increasing 1.6 percent in December. That’s not going to impress anyone, but it’s good enough to inspire optimism that Thursday’s GDP release will reveal that moderate growth will roll on.


S&P Case-Shiller Home Price Index (14:00 GMT): The housing market’s overall pace of recovery has slowed recently, but if you’re looking for obvious signs of trouble you won’t find it in the general direction of prices. Indeed, year-over-year prices continue to climb. The S&P Case-Shiller 20-City Home Price Index (HPI) was higher in October by nearly 14 percent versus the year-earlier level. The last time prices advanced that fast on an annual basis was early 2006. The difference, of course, is that the market peaked in 2006 and the pricing trend was on the cusp of a severe correction. Today, the market is still recovering, or so it appears, and the rate of price increases is still climbing.

In fact, some analysts warn that housing’s rebound of late has been too good on some fronts. Last month, for instance, Professor Robert Shiller, who helped design HPI, said “we're sort of in the beginnings of another housing bubble." Given Shiller’s influential reputation on bubble matters and housing analytics, the “b” word will certainly be front and center as the crowd digests today’s report for November. In some respects, it’s a damned-if-you-do-damned-if-you-don’t proposition. If year-over-year prices inch higher, some will claim that the market’s in danger of overheating in terms of valuation. On the other hand, a setback in the price trend will arouse new worries that the recent rise in interest rates is starting to pinch the recovery and so the year ahead could be rough for housing.

To the extent that you can decipher the health and trend of housing via prices (a connection that only goes so far), today’s data isn’t expected to be especially worrisome. In fact, economists think we’ll see the 20-city HPI rise another 0.8 percent in November versus the month before, which will translate into a slightly faster annual pace. That's enough to drown out the voice of the bears, although a faster annual pace will promote more bubble talk.



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