The U.S. housing market posted mixed results in December, with new single-family home sales reaching a seven-month high but November's figures revised downward, reflecting ongoing challenges. The Commerce Department reported a 3.7% monthly increase in sales to a seasonally adjusted annual rate of 621,000 units, the highest since May 2018. However, November's sales pace was revised down to 599,000 units from 657,000, with October also seeing downward adjustments.
Homebuilding faced headwinds from persistent land and labor shortages, which contributed to tight inventories and affordability issues. The housing market hit a soft patch in 2014 amid higher mortgage rates and supply chain disruptions, with home resales reaching a two-year low in January 2015. Investment in homebuilding contracted 0.2% in 2018, the weakest performance since 2010, as construction constraints continued to limit growth.
The services sector, which accounts for over two-thirds of U.S. economic activity, showed resilience in February despite trade tensions. The Institute for Supply Management (ISM) reported a 3.0-point rise in its non-manufacturing activity index to 59.7, with new orders surging to a 14-year high. However, concerns about U.S.-China tariffs and labor shortages persisted, with the services employment index falling to 55.2, its lowest since June 2018.
Economic growth is slowing as fiscal stimulus effects wane. Andrew Hunter of Capital Economics warned that GDP growth could drop below 2% in the first quarter, citing reduced government spending and higher interest rates. The Atlanta Fed currently forecasts a 0.3% annualized GDP increase for Q1, down from 2.6% in the final quarter of 2018. Analysts noted that sustained recovery depends on resolving trade disputes and addressing labor market constraints.
The ISM's services sector new orders sub-index surged 7.5 points to 65.2 in February, the highest since August 2005, though concerns about import tariffs remained prevalent in retail and hospitality sectors. Meanwhile, the housing market's median new home price fell 7.2% to $318,600 in December, the lowest since April 2016, as construction activity slowed amid ongoing supply chain challenges.
