The Weekly Economic & Real Estate Forecast – 5/22/17 to 5/26/17

What I Saw Last Week

U.S. Housing Starts dropped to a seasonally adjusted annual rate of 1.172 million in April – I had forecast a rise to 1.255M units. The April number was down 2.6% from a downwardly revised rate of 1.203M (from 1.215M) for March.

Starts

The downturn in starts was driven by a 9.2% decline in multifamily construction, yet single-family starts were up by a woeful 0.4%.

Single-family starts declined 29.2% in the Northeast, rose 19.4% in the Midwest, dropped 3.4% in the South, but rose 9.1% in the West

The number of units under construction at the end of the period held steady at a seasonally adjusted annual rate of 1.074 million, which was roughly in-line with the first quarter average, so there won’t be any strong growth takeaways there for second-quarter GDP estimates.

The takeaway from the report stems from the drop in single-family permits (see below), which suggests there will be continued supply shortages and affordability constraints in the new home market.

U.S. Building Permits declined 2.5% to a seasonally adjusted annual rate of 1.229M units.  I had forecast a rise to an annual rate of 1.270M units.

Permits

Most disappointed was a 4.5% drop in permits for single-family units.  Single-family building permits declined 1.9% in the Northeast, 3.1% in the Midwest, 7.9% in the South, but rose 2.1% in the West.

What to Watch for This Week

U.S. New Home Sales were running at an annual rate of 642,000 units in March and I anticipate a contraction when the April numbers are released on Tuesday.  My forecast is for the rate to drop to 575,000 as the number of starts remains well below average.

U.S. Existing Home Sales were running at an annual rate of 5.71 million units through March and the April figure is likely to show a modest drop to 5.65 million.  There are still not enough homes for sale.

The second estimate for US GDP is likely to show very slight improvement from the 0.7% rate first announced.  I think that it will rise to 0.8% – an improvement, but still disappointing.

The early May Consumer Sentiment figure was measured at 97.7 and I believe that the final number will show a very small drop to 97.5.

The Weekly Economic & Real Estate Forecast – 5/15/17 to 5/19/17

What I Saw Last Week

Inflation in April, as measured by the Consumer Price Index, was pretty much in line with expectations with the all-items index up by 0.2% (I had forecast 0.2%) and the core rate also matching my forecast with an increase of 0.1%.

CPI

On a year-over-year basis, the all items index was up 2.2%, versus 2.4% for the 12- months ending in March and the 1.7% average annual increase seen over the last 10-years.

The core index, which excludes food and energy, was up 1.9% year-over-year, versus 2.0% for the 12-months ended March and the average annual increase of 1.8% over the past decade.

The key takeaway from the CPI report is that consumer inflation pressures moderated a bit in April. That won’t change the thinking that the Fed will raise rates at its June meeting, yet it will temper concerns about the Fed possibly needing to be more aggressive with its rate hikes.

U.S. Retail Sales rose by 0.4% in April – I had called for a 0.6% increase – while core sales rose by 0.3% (below my forecast for an increase of 0.5%).

Retail Sales

The overall growth in retail sales was aided by a 0.7% increase in auto sales, as well as a nice jump in sales at electronics and appliance stores (+1.3%), building material and garden equipment and supplies dealers (+1.2%), and non-store retailers (+1.4%).

The takeaway from this report is that it puts consumer spending on a path toward being a much better contributor to second quarter real GDP growth than it was in the first quarter.

Consumer Sentiment in early May came in at 97.9 – this was well above my call for a pullback to 96.5.  The Current Economic Conditions Index was 112.7, unchanged from the final reading for April, while the Index of Consumer Expectations rose to 88.1 from 87.0

Sentiment

Interestingly, there hasn’t been a letup in consumer confidence since the election. The May number was nearly the same as the December to May average of 97.4.

The takeaway from this report is that consumers had some of the most favorable real income expectations in a dozen years, yet their buying plans were reportedly mixed. That disconnect seems to fit with the divide that has been seen between “soft” data, like this survey, and “hard” data like the personal spending report.

What to Watch for This Week

U.S. Housing Starts were running at an annual rate of 1.215M units in March and I anticipate that the April number will show an uptick.  My call is for annual starts to rise to 1.255M units.

U.S. Building Permits rose 3.6% to an annual rate of 1.260M units in March.  The April figure is likely to show further improvement with permits rising to an annual rate of 1.270M units.

 

The Weekly Economic & Real Estate Forecast – 5/08/17 to 5/12/17

What I Saw Last Week

The Income & Spending report for March showed incomes rising by 0.2% (after a downwardly revised 0.3% increase in February) and spending unchanged for the second month in a row. These figures exactly matched my forecast.

Income

The lackluster spending activity was already reflected in the advance estimate for Q1 GDP on Friday, so that isn’t a new headline shocker so to speak. Additionally, the personal income figures were also embedded in the GDP report and was not a surprise.

The key takeaway from the report is that it showed a deceleration in both the PCE (Personal Consumption Expenditures) Price Index and the core PCE Price Index year-over-year. That will temper concerns about the Fed being behind the curve in fighting inflation and it will quiet concerns about the Fed needing to be more aggressive in tightening monetary policy than is currently projected.

Total U.S. Construction Spending matched my forecast with a 0.2% decline in March.

Con Spend

Total private construction spending was unchanged in March as a 1.3% decline in non-residential spending offset a 1.2% increase in residential spending. The downturn in non-residential spending was led by educational (-7.8%), commercial (-3.2%), and office (-2.6%) spending.

On a year-over-year basis, total construction spending was up 3.6%, with total private construction spending up 7.0% and total public construction spending down 6.5%.

The key takeaway from the report is that the headline disappointment for March was more than offset by the upward revision to February, meaning the March miss wasn’t really a true miss!

The lead headlines from the April employment report were all encouraging. Payrolls increased more than expected, the unemployment rate dropped, average hourly earnings picked up and so did the average workweek.

April Non-Farm Payrolls rose by 211,000 (I had forecast an increase of 185,000 jobs).  March non-farm payrolls were revised down to 79,000 from 98,000 while February payrolls were revised up to 232,000 from 219,000.  I would add that, over the past three months, job gains have averaged 174,000 per month and are on track with my forecast for the country to add around 2 million jobs in 2017.

Payrolls

The key takeaway from the report for me is that there were some elements that left it a little out of sync with the view that the economy is poised to hit, and sustain, “escape velocity”.  The asynchrony I am referring to is the drop in the labor force participation rate and the deceleration in average hourly earnings growth on a year-over-year basis. The former dipped to 62.9% from 63.0% while the latter slipped to 2.5% from 2.6%.

Why there hasn’t been a meaningful acceleration in average hourly earnings growth with the unemployment rate at 4.4% is one of the more perplexing questions, yet I think it does provide the answer for why consumer spending has not lived up to the reportedly high levels of consumer confidence.

Perhaps that changes in the months ahead, yet it remains a stark reality today that will be buried beneath the press headlines addressing the job gains and the lowest unemployment rate since May of 2007.

Given the increase in employment, the U.S. Unemployment Rate dropped to 4.4% from 4.5% – I had forecast it to have notched up to 4.6%.

U RAte

The unemployment rate dropped even as the labor force participation rate edged lower to 62.9%. The employment-to-population ratio increased to 60.2%, its best showing of 2017 and the highest level since February 2009.

An alternative reading on the unemployment rate that includes those not actively looking for jobs as well as those working part-time for economic reasons dropped to 8.6% from 8.9% in March, the best reading since November 2007.

Consumer Credit rose by $16.4B in March – marginally above my forecast for an increase of $16B – after increasing a downwardly revised $13.8B (from $15.2B) in February.

Credit

The growth in March was driven mostly by an increase in non-revolving credit, which was up $14.5B to $2.805T.  Revolving credit increased by $1.9B to $999.8B.

Consumer credit increased at a seasonally adjusted annual rate of 4.25% during the first quarter (and 5.25% in March), with revolving credit little changed and non-revolving credit increasing at an annual rate of 5.75%.

 What to Watch for This Week

Inflation, as measured by the Consumer Price Index, dropped by 0.3% in March with the core rate 0.1% lower.  I am expecting to see total and core inflation up by 0.2%.

U.S. Retail Sales contracted by 0.3% in March and the April figure should be a lot better.  My call is for an increase of 0.6% and core sales up by 0.5%.

Consumer Sentiment in April was measured at 97.0 and the early May number should pull back a little to 96.5.

The Weekly Economic & Real Estate Forecast – 5/01/17 to 5/05/17

What I Saw Last Week

According to the Case Shiller Index, U.S. home prices rose more than anticipated in the month of February with the 20-city index up by 5.9% year-over-year.  I had forecast an increase of 5.8%.

CS

Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20 cities. In February, Seattle led the way with a 12.2% year-over-year price increase, followed by Portland with 9.7%. Dallas replaced Denver in the top three with an 8.8% increase. Fifteen cities reported greater price increases in the year ending February 2017 versus the year ending January 2017.

The low stock of existing homes for sale — currently about 3.8 months’ worth of supply at current sales rates — is bolstering the price increases across the board. Housing affordability has declined since 2012 as the pressure of higher prices has been a larger factor than stable to lower mortgage rates.

U.S. New Home Sales ran at a seasonally adjusted annual rate of 621,000 – I had forecast 590,000 – up 5.8% from the revised February rate of 587,000 (from 592,000)

New sales

March marked the highest sales pace since July 2016, and one of the highest sales paces since 2008.

The uptick in March was driven by a 25.8% increase in sales in the Northeast, which rebounded from a 24.4% decline in sales in January. The Midwest was the only region to experience a decline in sales (-4.5%), yet it was coming off a month in which sales surged 23.9% in February.

The median sales price of a new home increased 1.2% to $315,100 while the average sales price increased 5.6% to $388,200.  The key takeaway from the report is that demand for new homes was strong, notwithstanding higher price points from the same period a year ago.

Consumer Confidence dipped to 120.3 in April (I had called for a drop to 122.3) from a downwardly revised 124.9 (from 125.6) in March. Noticeably, the original March reading was the highest since the end of 2000.

Confidence

The key takeaway from the report is that confidence remains at high levels and indicative of an expectation that the economy will continue to expand in the months ahead.

The NAR Pending Home Sales Index dropped 0.8% in March (I had forecast a 4.8% increase).

Pending Index

Home shoppers are out in droves this spring; however, competition is rife for the meager number of listings in affordable price ranges.

Regionally, the pending home sales index in the Northeast fell 2.9% for the month but is 1.8% higher than in March 2016. In the Midwest, the index declined 1.2% monthly and 2.4 percent annually. Sales in the South rose 1.2% monthly and are 3.9% above last March. Sales in the West fell 2.9% monthly and 2.7% annually.

According to the advance estimate from the BEA,  GDP in the first quarter of 2017 increased at a seasonally adjusted annual rate of 0.7% (I had forecast +1.1%).

GDP

The main drag on growth in the first quarter was the change in private inventories, which subtracted 0.93%. A downturn in government spending subtracted 0.30%.

There was some notable strength in non-residential and residential fixed investment. Combined those two areas contributed 1.62% to first quarter growth.

The key takeaway from the report, however, was that the growth in personal consumption expenditures (PCE) was decidedly weak, increasing just 0.3%, which was the weakest growth in more than seven years.

The final Consumer Sentiment number for April dropped from the early month estimate of 98.0 to 97.0.  I had forecast no change.

Sentiment

The Current Economic Conditions Index was revised to 112.7 from 115.2, down slightly from the final reading of 113.2 for March.  The Index of Consumer Expectations was revised up to 87.0 from 86.9, topping the final reading of 86.5 for March.

The key takeaway from the report is that consumer sentiment remains high notwithstanding partisan political views among consumers about the economic outlook.

What to Watch for This Week

Income & Spending data for March is likely to show incomes rising by 0.2% but spending remaining unchanged. Spending data was reflected in the first quarter GDP number so it should come as no surprise.

U.S. Construction Spending rose by 0.8% in February and the March numbers should show a modest contraction of 0.2%.

Businesses added a meager 98,000 new jobs in March and the April data should show Non-Farm Payrolls improving with an increase of 185,000 jobs.

Even with this growth in employment, I expect to see the Unemployment Rate notch back up to 4.6%.

Consumer Credit rose by $15.2B in February on the back of rising non-revolving loans.  Look for the March data to show further growth of $16B.

The Weekly Economic & Real Estate Forecast – 4/24/17 to 4/28/17

What I Saw Last Week

The NAHB Housing Market Index said its housing-market index fell by three points to 68 in April (I had forecast a more modest drop to 70).

HMI

Even with this contraction in this index, I am not concerned with the drop as there is clearly continued demand for new construction housing.  That said, builders are facing several challenges including hefty regulatory costs and ongoing increases in building material prices.

Irrespective of this modest drop, I believe that builder confidence is on very firm ground, and home builders are reporting strong interest from potential buyers.

U.S. Building Permits jumped 3.6% to a seasonally adjusted annual rate of 1.260M – I expected to see the figure rising to an annual rate of 1.240M units.

Permits

The growth was driven by a 13.8% surge in multifamily permits while single-family permits were flat to down in every region, except for the South (+1.3%). The Midwest saw the largest decline in single-family permits (-5.9%).

Though single-family permits fell 1.1% last month, they remain not too far from the more than nine-year high reached back in February. A tightening labor market, which is generating steady wage growth, is underpinning the housing market.

U.S. Housing Starts ran a bit loose in March with starts checking in at a seasonally adjusted annual rate of 1.215M units – I had expected to see a figure closer to 1.260M units – down 6.8% from the upwardly revised rate of 1.303M (from 1.288M) for February.

Starts

The downturn in starts was evenly balanced with single-family starts down 6.1% to 821,000 and multi-unit starts down 7.9% to 394,000. Single-family starts were flat or down in every region, except for the South (+3.2%). The Midwest saw the largest decline, with single-family starts down 35% from February.

Notwithstanding the weaker-than-expects starts data for March, this report held some positive connotations for first quarter GDP, as the number of units under construction at the end of the period was little changed at 1.085 million. That left the first quarter average of 1.081 million above the fourth quarter average of 1.054 million.

The key takeaway from the report is that single-family permits fell 1.1% to 823,000, which is a discouraging indicator for a housing market very much in need of new supply, specifically at lower price points.

U.S. Existing Home Sales in March rose 4.4% to a seasonally adjusted annual rate of 5.71 million units – I had forecast a smaller rise to an annual rate of 5.55M units.

Existing sales

March sales were 5.9% above the same period a year ago and marked the highest pace of sales since February 2007 when they stood at 5.79 million.

Total inventory increased 5.8% to 1.83 million existing homes for sale at the end of March, yet that is down 6.6% from a year ago. At the current sales pace, unsold inventory is at a 3.8-month supply versus the 4/6-months’ supply typically associated with a more balanced market.

The median existing home price for all housing types increased 6.8% year-over-year to $236,400, which is the 61st consecutive month of year-over-year gains. The median existing single-family home price jumped 6.6% year-over-year to $237,800.

The key takeaway from the report is that demand is strong, inventory is still low, and prices continue to rise, meaning it is important for mortgage rates to stay low to support affordability conditions since home prices are rising at a much faster pace than personal income.

What to Watch for This Week

The Case Shiller Index data for February is likely to show prices up 5.8% year-over-year (from 5.7% in January).  Demand remains robust in most the country.

U.S. New Home Sales rose at an annual rate of 592,000 units in February and I anticipate a slight contraction when the March data is released.  Look for a number of around 590,000.

Consumer Confidence jumped to 125.6 in March and I expect to see the April number pull back a little to 122.3.

The NAR Pending Home Sales Index rose 5.5% in February and the March figure should drop back slightly on inventory constraints.  Look for a rise of 4.8%.

The first take on US GDP in the first quarter of 2017 should show the economy having expanded by 1.1%.

The final Consumer Sentiment number for April should show no change from the preliminary figure of 98.0.

The Weekly Economic & Real Estate Forecast – 4/17/17 to 4/21/17

What I Saw Last Week

The Survey of Consumers conducted by the University of Michigan showed an uptick in the preliminary April reading for Consumer Sentiment which came in at 98.0 – I had anticipated a drop to 96.3.

Sentiment

The Current Economic Conditions Index rose from 113.2 to 115.2 – up from 106.7 in the same period a year ago – while the Index of Consumer Expectations rose from 86.5 to 86.9. (This index stood at 77.6 in the same period a year ago.)

The takeaway from the report is that consumers are feeling very good about current economic conditions, evidenced by the Current Economic Conditions Index rising to its highest level since 2000 and trending toward its all-time peak of 121.1 set in 1999.

The Retail Sales report for March was disappointing, not only because it was weaker than expected, but also because it featured downward revisions to the February number.

Total retail sales dropped by 0.2% (I had forecast a drop of 0.1%), and core sales remained unchanged.

Retail Sales

The downturn in March was driven by weakness in auto sales (-1.2%) and gasoline station sales (-1.0%), as expected. There was also some notable weakness, though, in building material and garden equipment and supplies dealer sales (-1.5%) and food services and drinking places sales (-0.6%).

Some offsetting strength was provided by electronics and appliance stores (+2.6%), miscellaneous store retailers (+1.8%), clothing and clothing accessories (+1.0%), non-store retailers (+0.6%), food and beverage stores (+0.5%), and general merchandise stores (+0.3%).

On a year-over-year basis, retail sales are up 5.2%. Excluding autos, retail sales are up 5.6%.

The takeaway from the report is that it underscores a clear divide between the strong consumer confidence readings, which are “soft” data, and the sluggish spending on goods by consumers, which is “hard” data.

Inflation, as measured by the Consumer Price Index, dropped by 0.3% in March (I had forecast no change) with core CPI dropping by 0.1%.

CPI

The March decline in CPI was the first monthly decline since February 2016 and the decrease in core CPI was the first since January 2010.

On a year-over-year basis, CPI is up 2.4%, versus 2.7% for the 12-months ending February. Core CPI is up 2.0% – the smallest 12-month increase since November 2015.

The takeaway from the report is that consumer inflation pressures eased in March, and it wasn’t just driven by a downturn in energy prices. That should take some of the edge off with respect to the idea that the Federal Reserve might have to be more aggressive than expected this year with its policy tightening efforts.

What to Watch for This Week

The NAHB Housing Market Index was measured at 71 in March and I expect to see a slight pullback in the April number. Look for it to come in down one point to 70.

U.S. Building Permits were running at an annual rate of 1.213M units in February. I expect to see improvement in the March report with the figure rising to an annual rate of 1.240M units.

U.S. Housing Starts are likely to drop back from the annual rate of 1.288M seen in February.  My expectation is for a figure closer to 1.260M units.

U.S. Existing Home Sales dropped in February to an annual rate of 5.48M units.  Look for a better number of sales in March and the annual rate rising to 5.55M units.

The Weekly Economic & Real Estate Forecast – 4/10/17 to 4/14/17

What I Saw Last Week

U. S. Construction Spending rose by 0.8% in February. While this was below the 1.0% increase that I had anticipated, the headline disappointment was offset by an upward revision to January (from -1.0% to -0.4%).

Con Spend

On the private side, residential construction spending increased 1.8%, which more than offset a 0.3% decline in non-residential spending that was paced by a downturn in communication (-8.1%), transportation (-4.2%), health care (-2.2%), and manufacturing (-1.7%) spending.

Total construction spending is up 3.0% year-over-year. Private construction spending is up 6.9% year-over-year while public construction spending is down 8.0% year-over-year.

The key takeaway from the report is that increases were seen in both private construction spending (+0.8%) and public construction spending (+0.6%).

March Non-Farm Payrolls increased by 98,000 (I was expecting a more robust 155,000). Over the past three months, job gains have averaged 178,000 per month. February non-farm payrolls were revised down to 219,000 from 235,000 and January payrolls were also lowered to 216,000 from 238,000.

Payrolls

March private sector payrolls rose by 89,000. February private sector payrolls were revised down to 221,000 from 227,000 and January private sector payrolls were also revised down to 204,000 from 221,000.

Hiring in March was expected to drop after the monthly gains of more than 200,000 in the two previous months, but this was the weakest showing for the economy in nearly a year. Although it represents just one month’s data, it will raise questions about whether improving business sentiment is actually translating into any meaningful action by employers.

The March Unemployment Rate was 4.5% versus 4.7% in February and the labor force participation rate was steady at 63.0%.

U RAte

Persons unemployed for 27 weeks or more accounted for 23.3% of the unemployed versus 23.8% in February.

The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, decreased to 8.9% from 9.2% in February.

The takeaway here is that the unemployment rate is now at its lowest level since May of 2007.

Consumer Credit  increased by $15.2 billion in February after increasing an upwardly revised $10.9 billion (from $8.8 billion) in January.

Credit

The growth in February was driven mostly by an increase in non-revolving credit, which was up $12.3 billion from January to $2.79 trillion.  Revolving credit increased by $3.0 billion to $1.00 trillion.

Consumer credit increased at a seasonally adjusted annual rate of 4.75% in February, with revolving credit increasing at an annual rate of 3.50% and non-revolving credit increasing at an annual rate of 5.25%.

What to Watch for This Week

Consumer Sentiment was measured at 96.9 in March and the early April figure is likely to pull back slightly to around 96.3 as proposed changes to federal policy get ham-strung in Congress.

U.S. Retail Sales rose by 0.1% in February and the March figure should show an about-face with a small 0.1% contraction.

Inflation, as measured by the Consumer Price Index, rose by 0.1% in February and the March report is likely to show no change.

%d bloggers like this: