Economists' Outlook

Housing stats and analysis from NAR's research experts.

Trade Deficit, Consumer Sentiment, Flow of Funds

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses the trade deficit, consumer sentiment, and flow of funds data.

  • Information on net exports - one of the factors used to measure economic (GDP) growth - was released today and showed that the trade deficit narrowed by 1.6 percent, or $0.7 billion, in October.
  • A deficit occurs when imports exceed exports.  Since exports are an addition to GDP while imports are a subtraction, a larger deficit indicates weaker economic growth while a smaller deficit indicates stronger economic growth.  Today’s information suggests a continued mild boost from trade, though this is due to declining imports rather than increasing exports.
  • The University of Michigan’s Index of Consumer Sentiment today shows additional reason to suspect continued improvement in growth.  The index for December, a preliminary figure, rose notably to 67.7.
  • This is the 4th consecutive monthly increase in this indicator and its highest reading since June 2011.
  • Consumer Sentiment is comprised of 2 subindexes, one for current conditions and one for expectations.  September’s increase in consumer sentiment was driven by current conditions, but since that time, and especially in today’s December data, improving consumer expectations have taken over as the driver of improvement in sentiment.  This suggests continued improvement in consumer spending, another boost to GDP.
  • Yesterday, the Federal Reserve released data from the 3rd quarter that shows, among other things, the net worth of households and non-profits.  At the end of the 3rd quarter, households and non-profits had a net worth of $57.4 trillion, down from $59.8 trillion in the 2nd quarter.
  • Household real estate declined by about $100 billion while non-profit real estate increased by about $200 billion.  Households reduced their home mortgage liabilities by about $50 billion.  In aggregate, homeowners have about 40 percent equity in their homes meaning about 60 percent of the value of all homes is mortgaged.
  • If real estate was not driving the overall changes in net worth in the 3rd quarter, what was?  Financial assets, most notably equities (stocks).
  • Tangible assets, including real estate, among households and non-profits are about one-third of the balance sheet while financial assets are about two-thirds.  In part because of their larger share of the balance sheet and in part because of their more volatile behavior, changes in financial assets generally have a larger impact on the bottom line of aggregate net worth.  From the 2nd quarter to the 3rd quarter of 2011, the value of financial assets declined more than 5 percent, or approximately $2.7 trillion.  The value of equities held directly and indirectly by households and non-profits alone declined by $3.2 trillion in the quarter.
  • This information covers the 3rd quarter, and we know that stock markets have improved considerably since then.  This is one of the factors reflected in the improved consumer sentiment data.
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