The Weekly Economic & Real Estate Forecast – 12/11/17 to 12/15/17

What I Saw Last Week

Consumer Credit rose by $20.5B in October – I had forecast $17B – after increasing a downwardly revised $19.2B (from $20.8B) in September.

Credit

The growth in October was driven by non-revolving credit, which was up $12.2B from September to $2.791T. Revolving credit increased by $8.3B to $1.012T.

Consumer credit increased at a seasonally adjusted annual rate of 6.5% in October, with revolving credit increasing at an annual rate of 10% and non-revolving credit increasing at an annual rate of 5.25%.

The takeaway here is that October saw the largest increase in consumer credit since November 2016.

U.S. Non-Farm Payrolls in November rose by 228,000 (I had forecast 190,000). Over the past three months, job gains have averaged 170,000 per month. October payrolls were revised down to 244,000 from 261,000 while September payrolls were revised up to 38,000 from 18,000.

Payrolls

November private sector payrolls increased by 221,000 with October private sector payrolls revised down to 247,000 from 252,000 and September private sector payrolls revised up to 50,000 from 15,000.

The takeaway here is that the job market continues to grow, but at a more modest rate than seen in 2016 with employment growth averaging 174,000 per month year-to-date, compared with average monthly growth of 187,000 for all of 2016.

The Unemployment Rate in November met my forecast and remained at 4.1%.

U Rate

Persons unemployed for 27 weeks or more accounted for 23.8% of the unemployed versus 24.8% in October. The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, rose by a tenth to 8.0% versus 7.9% in October.

The takeaway here is that the current unemployment rate is at its lowest level since 2000.

Consumer Sentiment in early December came in at 96.8 – I had forecast 98.8 – down slightly from the final November reading of 98.5.

Sentiment

The Current Economic Conditions Index increased from 113.5 to 115.9 while the Index of Consumer Expectations slipped from 88.9 to 84.6.

The takeaway from the report is that consumers continue to remain upbeat about current economic conditions, with higher income expectations feeding their optimism. As an aside, there was also a jump in consumers’ inflation expectations for 2018.

 

What to Watch for This Week

Inflation, as measured by the Consumer Price Index, has really been a non-factor so far this year but I anticipate that it might have kicked up a bit in November with the total rate up by 0.4% and the core rate up by 0.2%.

The Federal Reserve meets this week and I can almost guarantee that they will raise the Fed Funds Rate by a quarter point.

U.S. Retail Sales growth in November should be an improvement over October with total sales up by 0.3% and core sales (ex-auto) up by 0.6%.

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The Weekly Economic & Real Estate Forecast – 12/04/17 to 12/08/17

What I Saw Last Week

U.S. New Home Sales jumped 6.2% month-over-month in October to a seasonally adjusted annual rate of 685,000 – I had forecast an increase to 680,000 – from a downwardly revised 645,000 (from 667,000) in September.

New Sales

The current level is the highest seasonally adjusted annual rate of sales seen since October of 2007.

The median sales price rose 3.3% year-over-year to $312,800 while the average sales price soared 13.6% to $400,200. (Of note is that this is the first time the average sale price has broken the $400,000 barrier).

Based on the current sales pace, the inventory of new homes for sale fell to 4.9-months’ supply versus 5.2 months in seen in September and  at the same level as seen a year-ago.

The takeaway from the report is that there was sales growth in all regions, led by a huge pickup in sales in the Northeast and the Midwest, underscoring solid demand for new homes.

Consumer Confidence jumped to 129.5 in November (I had forecast 124.0) from an upwardly revised 126.2 (from 125.9) in October. The November reading is the highest seen since November 2000.

Confidence

The takeaway from the report is that consumers are optimistic about the labor market, but are surprisingly reserved about their short-term income prospects. That is noteworthy because high levels of consumer confidence help consumer spending activity, yet it is income growth that drives consumer spending activity.

The Case Shiller Index rose by 6.2% year -over-year through September – above my call for a 6% increase.

case shiller

Before seasonal adjustment, the National Index posted a month-over-month gain of 0.4% in September. The 10-City and 20-City Composites reported increases of 0.5% and 0.4%, respectively.

After seasonal adjustment, the National Index recorded a 0.7% month-over-month increase in September. The 10-City and 20-City Composites posted 0.6% and 0.5% month-over-month increases, respectively. 15 of 20 cities reported increases in September before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

As can be seen from the chart above, eight of the 20 cities included in this report have now breached their pre-recession high and several more are getting close.

Most economic indicators suggest that home prices can see further gains.  Rental rates and home prices are climbing, the rent-to-buy ratio remains stable, the average rate on a 30-year mortgage is still hovering around 4%, and at a 3.8-month supply, the inventory of homes for sale is still low.

The overall economy is growing with the unemployment rate at 4.1%, inflation at 2% and wages rising at 3% or more. One dark cloud for housing, however, is affordability – rising prices mean that some people are being squeezed out of the market.

The second estimate for U.S. GDP in the third quarter showed the national economy expanding by 3.3%, slightly above my call for it to have increased to 3.2% from the previously reported 3.0%.

GDP

The upward revision was driven by larger increases than previously estimated for non-residential fixed investment (from 3.9% to 4.7%), state and local government spending (from -0.9% to -0.1%), and private inventory investment (from $35.8B to $39B).

The takeaway from the report is that economic output grew at its strongest pace since the first quarter of 2015, driven by a pickup in both consumer and business spending — and all this despite the disruptions created by the hurricanes.

The NAR Pending Home Sales Index for October jumped 3.5% in October – well above my forecast for a modest 0.6% increase.

Pending Sales

Unsurprisingly, sales were strongest in the South, likely a result of pent-up demand after hurricanes hit the southern states over the summer.

The current index level is still 0.6% below that seen a year ago, but is at the highest level seen since June of this year.

Sales were higher in the Northeast by 0.5% monthly, and in the Midwest where they were up by 2.8%. In the West, where prices are highest and inventory is slim, homes experienced a monthly decline of 0.7%. All three regions were lower compared with October of 2016.

The takeaway here is that the number of homes for sale has now decreased every month (on an annual basis) for 29 consecutive months, and the number of homes for sale at the end of October was the lowest for the month since 1999. The housing market remains remarkably tight and that will continue to put upward pressure on home prices.

Income & Spending data showed incomes up by 0.4% (I had forecast 0.3%) and spending matching my forecast for a 0.3% increase.

Income & Spending

The PCE (Personal Consumption Expenditures) Price Index was up 0.1%, leaving it up 1.6% year-over-year, versus up 1.7% in September.

On a year-over-year basis, real disposable personal income was up 1.6%, versus 1.1% in September, and real PCE was up 2.6%, unchanged from September.

The takeaway from the report is that it points to the prospect of improved consumer spending and the persistence of low inflation.

Total U. S. Construction Spending rose by 1.4% in October, well above my forecast for a 0.5% increase, after a 0.3% increase in September.

Construction Spending

On a year-over-year basis, total construction spending was up 2.9%, with public construction spending up 1.8% and private construction spending up 3.2%.

The October increase was driven by a 3.9% increase in total public construction spending as total private construction spending only rose by 0.6%. Total residential construction spending was up 0.4% in October while total non-residential spending rose 2.1%.

On the public side, non-residential spending increased 4.0%, led by a 10.9% increase in educational spending and a 1.1% increase in highway and street spending.

On the private side, residential spending was up 0.4%, bolstered by a 0.3% increase in new single-family construction. Non-residential spending was up 0.9%, led by a 4.4% increase in office spending and a 1.3% increase in manufacturing spending.

The takeaway from this report is that overall construction spending growth remains modest and remains an inhibitor of stronger real GDP growth.
What to Watch for This Week

 

Consumer Credit rose by $20.8B in October and I anticipate that the November figure will show a further expansion of $17B.

U.S. Non-Farm Payrolls were up by 261,000 in October and the November figure should show that the economy added an additional 190,000 jobs last month.

Even given the above jobs forecast, I expect to see the Unemployment Rate remain at 4.1%.

Consumer Sentiment in early December should be up from the final November figure of 98.5.  Look for a number around 98.8.

The Weekly Economic & Real Estate Forecast – 11/27/17 to 12/01/17

What I Saw Last Week

U.S. Existing Home Sales increased 2.0% month-over-month in October to a seasonally adjusted annual rate of 5.48M units (I had forecast an increase to 5.42M units) versus a downwardly revised 5.37M (from 5.39M) in September. The October sales pace is the strongest since June; however, it is still 0.9% below the level seen a year ago.

Confidence

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The median existing home price for all housing types increased 5.5% to $247,000, which was the 68th straight month of year-over-year gains. The median existing single-family home price was measured at $248,300, up 5.4% from a year ago.

The inventory of homes for sale at the end of October (1.80M units) dropped 3.8% and is 10.4% lower than the same period a year ago. It is notable that the inventory of existing homes for sale has fallen year-over-year for 29 consecutive months.

Unsold inventory is at a 3.9-month supply at the current sales pace, versus 4.4 months a year ago and well below the 6.0-month supply typically associated with a more balanced market.

First-time buyers were 32% of sales in October, up from 29% in September but down from 33% a year ago, while all-cash sales were 20% of transactions, unchanged from September but down from 22% a year ago.

My takeaway from the report is that notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability.

The final Consumer Sentiment number for November was revised to 98.5 from the early month figure of 97.8 – my call was for it to rise to 97.9.

Sentiment

The upward revision was a byproduct of an upward adjustment in the reading for the expectations index which rose from 87.6 to 88.9.

The takeaway from the report is that consumers are feeling more confident in their expectations for income, employment, and inflation, which could bode well for future spending activity.

What to Watch for This Week

U.S. New Home Sales in September were measured at an annual pace of 667,000.  The October figure should come in a little stronger with the annual rate up to 680,000.

The 20-City Case Shiller Index rose by 5.9% year -over-year through August and the September number is likely to show prices up by 6%.

Consumer Confidence in October came in at 125.9 – its highest reading since December 2000 – and the November number will likely be a little softer. Look for a figure of around 124.0.

The second estimate for U.S. GDP in the third quarter should show the national economy expanding by 3.2%, up from the initial figure of 3%.

The NAR Pending Home Sales Index for October will show slight improvement with the index higher by 0.6%.

Income & Spending rose by 0.4% and 1.0% respectively in September and the October figures will show both incomes and spending higher by 0.3%.

U. S. Construction Spending rose by 0.3% in September and the October figure should show further expansion of 0.5%.

The Weekly Economic & Real Estate Forecast – 11/20/17 to 11/24/17

What I Saw Last Week

All measures of Inflation, as measured by the Consumer Price Index, matched my forecast with the overall rate rising by 0.1% and the core rate rising by 0.2%.

CPI

A 0.3% increase in the shelter index drove the all items increase, which was mitigated by a 1.0% decline in the energy index and the food index being unchanged for the month.

Core CPI was also pushed up by the shelter index, as well as increases in the indexes for medical care, used cars and trucks, tobacco, education, motor vehicle insurance, and personal care.

On a year-over-year basis, the all items index rose 2.0%, versus 2.2% for the 12 months ending September. Core CPI increased 1.8%, breaking a five-month string in which core CPI was up 1.7% year-over-year.

The takeaway from the report is that inflation pressures are still not acute, yet they are likely not weak enough to persuade the Federal Reserve from raising the fed funds rate again at its December meeting.

U.S. Retail Sales in October rose by 0.2% (I had forecast 0.1%) and the core rate (ex-autos) also rose by 0.1% – I had forecast 0.2%.

Retail Sales

There was continued strength in discretionary spending areas; furniture and home furnishing stores (+0.7%), electronics and appliance stores (+0.8%), clothing and accessories (+0.8%), sporting goods, hobby, and music stores (+1.5%), and food services and drinking places (+0.8%).

The takeaway from the report is that it isn’t as soft as it appears at first blush, as there was an unwinding of some of the hurricane-related sales strength that led to the remarkably strong sales activity in September.

The NAHB Housing Market Index showed builder confidence rising to an 8-month high; however, builders continue to face supply-side constraints such as lot and labor shortages and ongoing building material price increases.

HMI

Nonetheless, demand for single-family housing is increasing at a consistent pace, driven by job and economic growth, rising homeownership rates and limited housing inventory. With these economic fundamentals in place, we should see continued upward movement of the single-family housing market as we close out 2017.

Two out of the three HMI components registered gains in November. The component gauging current sales conditions rose two points to 77 and the index measuring buyer traffic increased two points to 50. Meanwhile, the index charting sales expectations in the next six months dropped a single point to 77.

U.S. Building Permits rose by 5.9% in October to a seasonally adjusted annual rate of 1.297M – I had forecast a rise to 1.243M units.

Permits

Single family permits rose by 1.9% while multifamily permits were up by a substantial 13.9%.

Single-family permits, a reasonable indicator of future construction conditions, are running 10% higher on a year-to-date basis. Part of the gain for single-family construction in October was a rebound in Florida and Texas after project delays in September.

U.S. Housing Starts surged 13.7% month-over-month in October to a seasonally adjusted annual rate of 1.29M units – I had forecast an increase to 1.198M units.

Starts

Single-family starts increased for the month, rising to an 877,000 seasonally adjusted rate in October. This monthly annualized rate matches the post-recession high pace set in February of this year. However, the three month-moving average for single-family starts is at a post-recession high (860,000). Single-family starts are up more than 8% year-to-date compared to 2016 as limited existing inventory and solid builder confidence make for positive market conditions.

What to Watch for This Week

U.S. Existing Home Sales were up by 0.7% month-over-month in September to a seasonally adjusted annual rate of 5.39M units. I expect to see the October number be somewhat more robust with sales up to an annual rate of 5.42M units.

The final number for Consumer Sentiment in November will essentially remain at the early month figure of 97.8. My call is for it to rise by one tenth to 97.9.

The Weekly Economic & Real Estate Forecast – 11/13/17 to 11/17/17

What I Saw Last Week

Consumer Credit increased by $20.8B in September – I had forecast an increase of $18.3B – after increasing an unrevised $13.1B in August.

Credit

The growth in September was driven by non-revolving credit, which was up $14.4B from August to $2.782T, driven most likely by lending activity tied to replacement auto demand following the hurricanes. Revolving credit increased by $6.3B to $1.006T.

Consumer credit increased at a seasonally adjusted annual rate of 5.50% in September with revolving credit and non-revolving credit increasing at similar annual rates.

Consumer Sentiment in early November slipped to 97.8 from the final October reading to 100.7 – I had forecast a more modest drop to 100.5.

Sentiment

The Current Economic Conditions Index dipped from 116.5 to 113.6 and the Index of Consumer Expectations fell from 90.5 to 87.6.

The takeaway here is that while wage gains and the overall number of consumers has been trending positively, these favorable trends were countered by a slight rise in year-ahead inflation expectations and a growing consensus that interest rates will increase during the year ahead.

What to Watch for This Week

Inflation, as measured by the Consumer Price Index, has been soft and is not yet running afoul of the Fed’s price stability mandate. I anticipate that the October report will hold to the current pattern of benign inflation. Look for the top line number to come in at 0.1% month-over-month and the core rate rising by 0.2%.

U.S. Retail Sales rose by 1.6% in September – boosted by the recent hurricanes. I am looking for the October figure to show marginal growth (+0.1%) and the core rate (ex-autos) up by 0.2%.

U.S. Building Permits dropped by 4.5% in September to a seasonally adjusted annual rate of 1.215M units. The October number should show activity increasing to an annual rate of 1.243M units.

U.S. Housing Starts in September were measured at 1.127M units. The October figure will show an increase to 1.198M units.

The Weekly Economic & Real Estate Forecast – 11/06/17 to 11/10/17

What I Saw Last Week

Income & Spending data for September was robust with incomes up by 0.4% (my forecast was for a 0.3% increase) and spending up by 1.0% (I had forecast a 0.8% increase.

Income

Incomes were led by a 0.4% increase in wages and salaries. Real disposable personal income (income remaining after deducting personal income taxes) decreased less than 0.1% and is up 1.2% year-over-year for the third straight month.

Real personal consumption expenditures rose 0.6% in September and are up 2.7% year-over-year versus up 2.5% for the 12 months ending in August.

The takeaway is that the PCE price data won’t trigger any major inflation alarm, yet it also won’t be seen as something that will stop the Fed from raising the fed funds rate at its December meeting.

The Case Shiller Index report for August showed the 20-City Index up by 5.9% – I had forecast a 6.0% year-over-year increase.

CS

Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In August, Seattle led the way with a 13.2% year-over-year price increase, followed by Las Vegas (+8.6%), and San Diego (+7.8%). Nine cities reported greater price increases in the year ending August 2017 versus the year ending July 2017.

CS2

August saw the National Index annual rate tick up to 6.1%; all 20 cities followed in the report were up year-over-year while one, Atlanta, saw the seasonally adjusted monthly number slip 0.2%.

Most prices across the rest of the economy are barely moving compared to housing. For example, over the last year the consumer price index rose 2.2% but that was driven largely by energy costs. Aside from oil, the only other major item with price gains close to housing was hospital services, which were up 4.6%. Notably, wages have climbed 3.6% year-to-date.

The ongoing rise in home prices poses questions of why prices are climbing and whether they will continue to outpace most of the economy. Currently, low mortgage rates, combined with an improving economy, are supporting home prices. The price gains are not simply a rebound from the financial crisis; nationally and in nine of the 20 cities in the report, home prices have reached new all-time highs. However, home prices will not rise forever. Measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking. The Federal Reserve is pushing short term interest rates upward and mortgage rates are likely to follow over time, removing a key factor supporting rising home values.

Consumer Confidence in October rose to 125.9, well above my forecast for an increase to 121.5 and up from an upwardly revised 120.6 (from 119.8) in September.

Confidence

The Present Situation index increased from 146.9 to 151.1 while the Expectations Index increased from 103.0 to 109.1.

The takeaway from the report is that upbeat attitudes about the current job market factored prominently in the elevated reading, which is a hopeful indication for stronger consumer spending activity moving forward.

U.S. Construction Spending rose by 0.3% in September – I had forecast a 0.2% decline – after a downwardly revised 0.1% increase (from 0.5%) in August. Taking the revision into account, total spending was largely in-line with expectations.

Con Spend

On a year-over-year basis, total construction spending was up 2.0%, with public construction spending down 1.6% and private construction spending up 3.1%.

The September increase was driven by a surprising 2.6% increase in total public construction spending. Total private construction spending declined 0.4% with the effects of the hurricanes playing a part there.

The takeaway from the report is that overall construction spending remains modest and remains an inhibitor of stronger real GDP growth.

As I had anticipated, the Federal Reserve met and decided to leave the Fed Funds Rate at its current level.  I still anticipate that they will raise rates at their December meeting.

Non-Farm Payrolls in October marked a return to pre-hurricane form with the nation adding 261,000 jobs in the month (I had forecast 300,000) aided by a sharp rebound in food services and drinking places jobs (+89,000).

Payrolls

Over the past three months, job gains have averaged 162,000 per month. September non-farm payrolls were revised to 18,000 from -33,000 and August non-farm payrolls were also revised up to 208,000 from 169,000.

October private sector payrolls rose by 252,000 and September private sector payrolls were revised up to 15,000 from -40,000. August private sector payrolls were also revised higher – to 184,000 from 164,000.

The Unemployment Rate in October dropped to 4.1% – I had forecast it to have risen to 4.3%.

U RAte

Persons unemployed for 27 weeks or more accounted for 24.8% of the unemployed versus 25.5% in September. The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, dropped to 7.9% from 8.3% in September and is now at a level not seen since December 2006.

The labor force participation rate was 62.7% in October versus 63.1% in September.

By and large, it is the type of report that the stock market should appreciate because it holds true to that “Goldilocks” analogy of being neither too hot nor too cold. It was just right to ensure that the Fed will stick to its own theme of raising interest rates gradually.

What to Watch for This Week

Consumer Credit rose by $13.1B in August and the September figure should show that credit grew by an additional $18.3B.

Consumer Sentiment in early November is likely to drop modestly from the final October figure of 100.7.  Look for a figure of around 100.5.

The Weekly Economic & Real Estate Forecast – 10/30/17 to 11/03/17

What I Saw Last Week

September U.S. New Home Sales blew out my forecast for a small pullback to 555,000 and came in at a seasonally adjusted annual rate of 667,000 (+18.9%). It is notable that the increase marked the fastest pace of new home sales in 10 years.

New sales

In as much as I should be disappointed in the inaccuracy of my forecast, I am not. I am thrilled! Why? Well, as owners in existing homes move on to newly built ones, it frees up availability of smaller starter homes for those looking to become homeowners for the first time, hopefully easing modestly the log jam that has been in place regarding housing availability.

Based on the current sales pace, the inventory of new homes for sale fell to a 5.0-months’ supply versus 6.0 months in August. The median sales price of a new home increased 1.6% year-over-year to $319,700 while the average sales price jumped 5.2% to $385,200. Noticeably, homes priced at $399,999 or less accounted for 69% of the homes sold versus 72% in August.

The takeaway here is that the sales increases were broad-based, underscoring the point that the rebound in new home sales, which are counted when a contract is signed, was not just a function of a rebound from the depressed activity in the South due to the hurricanes.

The NAR Pending Home Sales Index for September remained unchanged at 106.0 from a downwardly revised -2.8% (from -2.6%) in August – I had forecast a 0.8% increase.

Pending Index

Pending home sales have fallen on an annual basis now for five of the past six months, and I don’t expect much improvement unless supply issue eases, which is unlikely even with the positive new home sale numbers discussed above.

The advanced reading for GDP showed the U.S. economy increased at annual rate of 3.0% in the third quarter (I had forecast a 2.4% growth rate) marking the second straight quarter the annualized rate has been 3.0% or higher. The last time GDP growth was 3.0% or higher for two straight quarters was Q-2 and Q-3 of 2014.

GDP

The headline surprise was driven by the change in private inventories, which contributed 0.7%.

Real final sales, which exclude the change in private inventories, decelerated to 2.3% from 2.9% in the second quarter on some soft consumer spending activity. Q-3 contributions to GDP growth were Personal Consumption Expenditures (+1.62%), Gross Private Domestic Investment (+0.98%), and Net Exports (+0.41%).

Now, granted the hurricanes created some temporary growth headwinds, but when the layers are peeled back, I must say that my takeaway from the report is that U.S. economic activity is proceeding largely at the same ho-hum pace, as evidenced by the prior 12-quarter average of 2.4% for real final sales. The number looks good, but for annual growth to show a 3% increase, Q-4 numbers will have to come in at over 14% – which just isn’t going to happen.

The final Consumer Sentiment number for October showed a slight drop from 101.1 to 100.7, marginally below my call for a drop to 101.0.

The Current Economic Conditions Index edged up to 116.5 from 116.4 and the Expectations Index dropped to 90.5 from 91.3.

Sentiment

Despite the dip, the index remains at its highest monthly level since the start of 2004 and it should also be noted that it is only the second time that the Index has registered above 100 since the end of the record 1990’s expansion.

What to Watch for This Week

Income & Spending data for September should be pretty robust with incomes up by 0.3% and spending up by 0.8% (hurricane induced).

The Case Shiller Index report for August will show the 20-City Index up by 6% year-over-year.

Consumer Confidence in October will likely rise from 119.8 to 121.5.

U. S. Construction Spending rose by 0.5% in August and the September number should show a contraction of 0.2%.

The Federal Reserve meets this week and they are almost guaranteed to leave the Fed Funds Rate alone but I still believe that they will raise rates after their December meeting.

Non-Farm Payrolls in October will impress and show that the nation added 300,000 new jobs in the month following the minus 33,000 seen in September.

Even with this growth in jobs, the Unemployment Rate will rise back up to 4.3% as the workforce expands.

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