Here's the outlook for housing, car sales, shopping and more.
Housing: Signs of repair After five years in the doldrums, the housing sector is showing signs of life. Home sales, housing permits and construction were all up nicely in the final months of 2011. Homebuilders all around are dusting off their hammers. KB Home (KBH) recently reported a 38% increase in fourth-quarter orders.The number of homes delivered by Lennar (LEN), which has a lot of exposure to distressed markets, was up 10% over the same period a year before; orders were up 21% .And while home prices remain weak nationally, they're firming in markets not plagued by foreclosures, says Jason Benowitz, co-manager of the Roosevelt Multi Cap (BULLX) fund. "At least in healthy communities, we see that pricing is stabilizing," he says.
Benowitz expects the housing market to continue perking up for several reasons. Homes are more affordable than ever, if you compare average household income with a typical monthly mortgage payment. Banks are loosening lending standards. And the inventory of homes on the market is back down to six months' worth of sales, levels not seen since before the housing bubble.
Sure, there's a shadow inventory of more houses to hit the market from foreclosures. But Benowitz says that natural demand from new households and home replacement, at about 1.4 million a year, outstrips housing starts by so much that we're reducing this overhang. Last year, construction starts were at a rock-bottom 600,000 for the year.
Autos: On the road again Car and truck sales advanced 11.2% over the year-ago period to 693,000 units in North America. That pushed North American sales up 14% to $19.6 billion. Not bad for a supposedly "sluggish economy" in the U.S. (Ford stock was down, despite the great sales news, because it missed earnings due to higher commodity, freight and compensation costs.)
Emerging markets: Re-emerging Emerging markets have been tough on investors. First, central banks -- most notably in China -- started becoming more restrictive in 2010 on worries that growth and inflation were getting out of hand. Then the European debt crisis struck in 2011, crimping a big export market for emerging-world producers. But now, central banks in China and Brazil are easing up, and we're seeing preliminary signs that growth will heat up again.
An emerging-market purchasing managers index -- which tracks the sentiment of buyers inside companies -- crossed into bullish territory (above 50) in December, points out John Derrick, the director of research at U.S. Global Investors, an investment shop specializing in emerging markets and natural resources.
The key here is that emerging-market countries are primed to show better response to central bank moves than are the U.S. and Europe, because they're free of many of the problems in the U.S. and Europe, says Peter Lee, the head of emerging market strategy at Mirae Asset Global Investments, which runs several emerging-market mutual funds. In emerging-market countries the banks are generally healthier, and consumers and governments don't have as much debt, he says. Lee expects 5.3% growth for emerging markets overall for 2012, with China and India leading the way at 8.5% and 7%, respectively.
Gaming: They're coming back to the tables In a sign that jobs, earnings and consumer confidence are coming back -- gamblers feel like they have money to lose again. Witness the increase in gaming revenue recently not only in Las Vegas, but also in Atlantic City, Illinois and Indiana. In Vegas, the number of visitors is up so much that hotel operators can ask a lot more for rooms. Revenue per available room, a key hotel-sector metric, advanced from 11% to 20% a month in October and November, says Chris Scheuer, a gaming sector analyst at Thrivent Financial for Lutherans. "They're coming back," he says. He's not exactly bowled over yet. But those results are better than what we've seen, and they're signs of strength in the economy. After all, if consumers feel like they have enough money to throw some away at the tables again, that's a pretty good sign of improving confidence. For investors, one key is that the outlook for new Vegas hotel construction is dismal. This means that a continued rebound in gaming will allow casino companies to cash in by raising room rates even further, says Scheuer.
Shoppers are buying, too Consumer spending advanced 2% in the fourth quarter, more than it grew during each of the previous two quarters. But more importantly, the private sector seems to be adding jobs. Most recently, it's added over 200,000 jobs a month, much more than during 2011.
Manufacturing is rebuilding U.S. factories have added more than 12% of new jobs, even though they account for only 9% of jobs overall. Factory job growth was actually higher, but the real strength gets hidden because a lot of factory jobs are classified as temp jobs by the government. This strength seems likely to continue. Manufacturing job postings were up 10% in November and December compared with the average for all the months in the rest of 2011, according to Indeed.com