The Weekly Economic & Real Estate Forecast – 05/21/18 to 05/25/18

What I Saw Last Week

U.S. Retail Sales exactly matched my forecast for an increase of 0.3% in April, on top of an upwardly revised 0.8% increase (from 0.6%) in March.  Excluding autos, retail sales rose 0.3% (lower than my forecast for +0.5%) on top of an upwardly revised 0.4% increase (from 0.2%) the prior month.

Retail sales

While there was a headline miss for the ex-auto number, that disappointment should be mitigated by the upward revision for March.  On a year-over-year basis, retail sales increased 4.7% with the core rate up 4.8%.

The takeaway from the report is that consumer spending on goods was decent in April. Core retail sales, which exclude auto, gas station, building materials, and food and drinking services sales, jumped 0.4%.

The NAHB Housing Market Index jumped two points in May – I had forecast no change – while the April number was revised down from 69 to 68. The May reading of 70 represents the fourth time this year that the index has been at or above that point.  It is notable that the May number reversed a three-month decline.

HMI

Regional measured are presented as three-month moving averages.  Scores in the West and Northeast held steady at 76 and 55, respectively. Meanwhile, the South and Midwest each edged down one point to levels of 72 and 65.

The May report showed that builders are buoyed by growing consumer demand for single-family homes; however, the record-high cost of lumber continues hurting builders’ bottom lines and making it more difficult to produce competitively priced houses for newcomers to the market.

U.S. Building Permits fell 1.8% in April to a seasonally adjusted annual rate of 1.352M. I had forecast a more modest drop of 0.3%.

Permits

Although the headline number was a disappointment, we can take some solace in the fact that permits for single-family homes rose 0.9%. By region, they declined 3.9% in the Northeast, rose 2.5% in the Midwest, were up 4.8% in the South, but dropped 6.7% in the West.

Multi-family permits declined 6.3% while multi-family starts dropped 11.3%.

U.S. Housing Starts declined 3.7% month-over-month in April to a seasonally adjusted annual rate of 1.287M. I had forecast a 0.5% increase.

Starts

Single-family starts increased just 0.1%, with month-over-month declines registered in every region except the South (+17.2%). Single-family starts declined 9.7% in the Northeast, 29.8% in the Midwest, and 10.1% in the West.

The takeaway from the report is that single-family activity remained fairly muted. Bad weather will get some blame for the torpid activity overall, yet nothing in this report suggests prospective homeowners can expect supply-driven price relief in the near future. In fact, if single-family starts continue at the strong yearly growth rate we saw in April, it will be fall 2019 before annual single-family starts break the 1 million mark consistently, which is still 17% lower than normal.

What to Watch for This Week

U.S. New Home Sales ran at an annual rate of 694,000 units in March and I expect to see the April number pull back to 677,000. Land and construction costs are still substantial impediments.

U.S. Existing Home Sales were measured at an annual rate of 5.6 million units in March and the April number will likely pull back to 5.57 million as a consequence of low inventory.

The final Consumer Sentiment number for May should stay at the early month level of 98.8.

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The Weekly Economic & Real Estate Forecast – 05/14/18 to 05/18/18

What I Saw Last Week

Total outstanding Consumer Credit rose by $11.7B in March – below my forecast for an increase of $16.1B – after increasing by an upwardly revised $13.6B (from $10.6B) in February.

Credit

The growth in March was driven entirely by non-revolving credit, which rose $14.2B month-over-month to $2.85T.  Interestingly, revolving credit dropped by $2.6B to $1.03T after decreasing by $0.5B in February.

Consumer credit rose at a seasonally adjusted annual rate of 4.25% in March, with revolving credit decreasing at an annual rate of 1.0% and non-revolving credit increasing at an annual rate of 6.0%.

The takeaway from the report is that there was a decline in outstanding revolving credit for the second straight month, which reflects a propensity by consumers to pay down debt in a rising interest rate environment. That inclination also helps explain why consumer spending growth was lackluster in the first quarter.

Inflation, as measured by the Consumer Price Index, rose 0.2% in April with the core rate up by 0.1% – I had forecast the reverse with total inflation up by 0.1% and the core rate up by 0.2%.

CPI

The monthly readings left CPI up 2.5% year-over-year, versus 2.4% in March, and core CPI up 2.1%, which was unchanged from March. In other words, there wasn’t a bothersome acceleration in the consumer inflation trend in April.

The month-over-month increase in total CPI was driven by a 1.4% increase in the energy index, a 0.3% jump in the shelter index, and a 0.3% uptick in the food index. A 0.3% jump in the shelter index pushed up core CPI in the face of mixed readings for other indexes.

The takeaway from the report is that both total CPI and core CPI headlines were weaker than expected, which helped temper concerns about the potential for the Fed to be more aggressive than expected.

Consumer Sentiment in early May held steady matching the final April reading of 98.8.  I had expected to see it drop modestly to 98.0.

Sentiment

The Current Economic Conditions Index slipped to 113.3 from 114.9 while the Index of Consumer Expectations rose to 89.5 from 88.4.

The data, according to the report, is consistent with a growth rate of 2.7% in real personal consumption expenditures from the second half of 2018 to the first half of 2019.

The takeaway from the report is that there was some slippage in income expectations and a small uptick in the one-year inflation expectation (to 2.8% from 2.7%).

What to Watch for This Week

U.S. Retail Sales rose by 0.6% in March and the April data should indicate growth of 0.3%. Core sales (that exclude auto sales) rose by 0.2% in March and the April figure should come in up 0.5%.

The NAHB Housing Market Index dropped one point to 69 in April and the May number is likely to remain unchanged.

U.S. Building Permits rose by 2.5% in March and I expect to see the April figure drop by 0.3%.

U.S. Housing Starts were up by 1.9% in March and the April data should show an increase of 0.5%.

The Weekly Economic & Real Estate Forecast – 05/07/18 to 05/11/18

What I Saw Last Week

Income & Spending rose by 0.3% and 0.4% respectively in March – I had forecast both to have risen by 0.4%.

Incomes

The takeaway from the report is that it shows consumer inflation in the reaches of the Federal Reserve’s inflation target, which will give the Federal Reserve some data-based ammunition to keep raising the fed funds rate.

As I had expected, the NAR Pending Home Sales Index for March disappointed; however, the increase of just 0.4% was even worse than my forecast for a 2.0% increase. Additionally, home sales were down 3% when compared to March 2017, marking the third straight month of annual declines.

PHS

Regionally, pending home sales in the Northeast fell 5.6% and were 8.1% below a year ago. In the Midwest, sales rose 2.4% monthly and fell 6.0% annually. Sale in the South rose 2.5% monthly and were 0.3% higher than last March. Sales in the West declined 1.1% monthly and were 2.2% below a year ago.

The takeaway here is that the biggest challenge in today’s housing market continues to be a severe shortage of homes for sale, especially at the lower end of the market, where demand is highest. There were about 9% fewer homes on the market in March when compared to a year ago, which functioned to push prices up 8%.

U.S. Construction Spending declined 1.7% in March – I had forecast a more modest 0.5% drop, following an upwardly revised 1.0% increase (from 0.1%) for February.

conSpend

The March report featured a 2.1% decline in total private construction spending. Total public construction spending was flat.

Public construction spending was held down by a 2.7% decline in transportation spending and a 0.1% decline in educational spending. A 1.2% increase in highway and street spending acted as an offset.

On a year-over-year basis, total construction spending was up 3.6%, with public construction spending up 3.0% and private construction spending up 3.9%.

The takeaway from the report is that construction spending growth continues to run at a relatively slow pace, which is an inhibitor of stronger overall growth.

US Non-Farm Payrolls rose by 164,000 in April – I had forecast 200,000 following a revised 135,000 (from 103,000) in March.

Payroll

Over the past three months, job gains have averaged 208,000 per month.

April private sector payrolls increased by 168,000 and March private sector payrolls were revised up to 135,000 from 102,000.  February private sector payrolls were also revised up to 321,000 from 320,000.

The Unemployment Rate in April dropped to 3.9% from 4.1%. I had forecast a drop to 4.0%.

URate

3.9% is the lowest level seen since December of 2000 and the labor force participation rate dipped in April despite reports pointing to improved job-finding prospects. It was the drop in the participation rate, too, that drove the drop in the unemployment rate lower than I had forecast.

Average hourly earnings were up 0.15%, so call it 0.2% with rounding, which was expected. The surprise there perhaps is that it computed into a year-over-year trend that remains remarkably understated given an unemployment rate with a 3-handle on it, initial jobless claims that are at multi-decade lows, and the acknowledgment from manufacturers that they are finding it difficult to find skilled labor.

In aggregate, it was a pleasing report but, with no real surprises, it is unlikely that the Fed will change its current stance of two more rate rises this year.

What to Watch for This Week

Consumer Credit rose by $10.6B in February and the March number should show a further increase of $16.1B.

Inflation, as measured by the Consumer Price Index, dropped 0.1% in March with the core rate up by 0.3%. I expect to see the April data show total inflation rising by 0.1% and the core rate up by 0.2%.

Consumer Sentiment in Early May is likely to have ticked down from the final April number of 98.8. Look for it to come in at 98.0.

The Weekly Economic & Real Estate Forecast – 04/30/18 to 05/04/18

What I Saw Last Week

U.S. Existing Home Sales rose 1.1% month-over-month in March to a seasonally adjusted annual rate of 5.60M units – I had forecast sales rising to an annual rate of 5.57M units – from an upwardly revised 5.54M (from 5.38M) in February. That said, total sales were 1.2% lower than the same period a year ago.

EHS

The median existing home price for all housing types increased 5.8% to $250,400, which was the 73rd straight month of year-over-year gains. The median existing single-family home price was $252,100 – up 5.9% from a year ago.

Existing home sales activity was mixed by region with the Northeast up by 6.3%; the Midwest 5.7% higher; the South dropped 0.4% and sales in the West were 3.1% lower than a year ago.

The inventory of homes for sale at the end of March rose 5.7% to 1.67M units, but this is still 7.2% lower than the same period a year ago. Notably, the inventory of existing homes for sale has now fallen year-over-year for 34 consecutive months.

The takeaway from the report remains the same – notable supply constraints continue to act as a drag on overall sales. The limited inventory, and the high prices on available inventory, continues to crimp affordability, particularly for first-time buyers; moreover, all prospective buyers are going to feel added affordability pressures from rising mortgage rates as we move through this year.

The Case Shiller Index for US home prices outperformed my forecast of a 6.4% rise in the 20-City index with an increase of 6.8%.

CS

Clearly, the critical shortage of homes for sale is driving home prices higher.

Local leaders continue to be Seattle (+12.7%), Las Vegas (+ 11.6%) and San Francisco (+10.1%). Thirteen of the top 20 cities saw bigger annual price increases in February than in January.

Year-over-year prices measured by the National index have increased continuously for the past 70 months. Over that time, the price increases averaged 6% per year.  With expectations for continued economic growth and further employment gains, I anticipate that the current run of rising prices is going to continue.

U.S. New Home Sales in March rose by 4.0% month-over-month to a seasonally adjusted annual rate of 694,000 units.  I had forecast a more modest increase to 631,000 units.

New

The median sales price increased 4.8% year-over-year to $337,200 but the average sales price dropped 3.8% to $369,900.

Based on the current sales pace, the inventory of new homes for sale dipped to a 5.2-months’ supply, versus 5.4 months in February and 5.0 months in the year-ago period.

Homes priced at $399,999, or less, accounted for 67% of new homes sold in March versus 72% in February. The decrease in the percentage of lower-priced homes that were sold fits with the strength in sales activity in the West region where prices are notably higher.

The takeaway from the report is that new home sales activity was the strongest in the South and West regions, which represent the nation’s biggest markets, suggesting there is solid underlying demand.

Consumer Confidence rose to 128.7 in April – I had forecast a drop to 126.1 – from a downwardly revised 127.0 (from 127.7) in March, leaving it in close proximity to the February reading, which was the highest level since 2000.

Confidence

The takeaway from the report is that the percent of consumers expecting their income to decline over the coming months reached its lowest level (6%) since December 2000. That view could be a good portent for a pickup in consumer spending since income expectations are typically driven by feelings of job security.

The advanced estimate for US GDP in Q-1 showed the economy expanding at an annual rate of 2.3% – slightly above my forecast for growth of 2.1%.

GDP

The takeaway from the report is that consumer spending was weak in the first quarter, increasing just 1.1% after increasing 4.0% in the fourth quarter. Real final sales, which exclude the change in inventories and are often viewed as the better gauge of growth, were up only 1.9% versus the prior ten quarter average of 2.2%. The “surge” that the administration believed would come following it tax cuts have yet to appear.

The final Consumer Sentiment number for April rose from the initially reported 97.8 to 98.8 – I had forecast an increase to 98.0 – but still below the March level of 101.4.

Sentiment

The takeaway here is that consumer sentiment is strong at a time when the economy is growing soundly and the job market is getting tighter.  A recent report on labor costs showed the biggest uptick in compensation in a decade; however, persistent lagging expectations regarding the future suggests to me that there is still reticence about just how much faster the economy can grow.

The rate of homeownership was unchanged from the fourth quarter of 2017, but it did improve slightly year-over-year.  The U.S. Census Bureau said the rate in each of the last two quarters was 64.2%, but that was 0.6% higher than in the first quarter of last year.  The rate hit an all-time low of 62.9% in the second quarter of 2016.

Ownership

The rate was highest in the Midwest at 67.9% and the South at 66.3%.  The Northeast and the West had rates of 60.5% and 59.7% respectively. Rates for each of the regions were up slightly from a year earlier except for a slight dip in the Northeast.  The West posted the greatest gain, rising 0.7%.

The takeaway here is that homeownership rates continue to trend back to their historic averages.

What to Watch for This Week

Income & Spending rose by 0.4% and 0.2% respectively in February.  I expect that the March data will show incomes up by 0.4% and spending 0.4% higher.

The NAR Pending Home Sales Index for March is probably going to disappoint. The February Index was measured at up by 3.1% and March should show a more modest 2.0% increase.

US. Construction Spending rose by a paltry 0.1% in February but the March numbers are

US Non-Farm Payrolls are likely to have risen by 200,000 in April following the 103,000 new jobs that were added in March.

The Unemployment Rate in April will show a drop from 4.1% to 4.0%.

The Weekly Economic & Real Estate Forecast – 04/23/18 to 04/27/18

What I Saw Last Week

Total U.S. Retail Sales rose 0.6% in March (I had forecast +0.4%) following a 0.1% decline in February.  Excluding autos, retail sales jumped 0.2%, as I had forecast, matching the 0.2% increase seen in February.

Retail Sales

Motor vehicle sales (+2.0%) led the overall advance, along with heath and personal care stores (+1.4%) and non-store retailers (+0.8%).  However; there were some weak spots with sporting goods (-1.8%), clothing and clothing accessories (-0.8%), building materials (-0.6%), and gasoline station sales (-0.3%) suffering the greatest declines.

The growth in core retail sales (which exclude auto, building materials, gasoline station, and food service and drinking places sales) factor in to the goods component of the GDP report, so it will be a positive input for economists making first quarter GDP forecasts which are released later this week.

The takeaway from the report is that March stopped a streak of three consecutive monthly declines in retail sales, although it also demonstrates that consumers continue to show some restraint in discretionary spending.

According to the NAHB Housing Market Index, builder confidence in the market for newly-built single-family homes took a one-point dip to 69 in April. I had forecast it to have remained at 70.

HMI

Among the HMI components, the index measuring buyer traffic held steady at 51 the index charting sales expectations in the next six months fell a single point to 77. and the component gauging current sales conditions dropped two points to 75. Looking at the regional HMI scores, the South remained unchanged at 73, the Northeast fell one point to 55, the Midwest declined two points to 66 and the West dropped three points to 76.

The takeaway from this report is that strong demand for housing is keeping builders optimistic about future market conditions; however, builders are facing supply-side constraints, such as a lack of buildable lots and increasing construction material costs. Tariffs placed on Canadian lumber and other imported products are pushing up prices and hurting housing affordability.

U.S. Building Permits rose 2.5% to a seasonally adjusted annual rate of 1.354M units – I had forecast an increase to an annual rate of 1.315M.

Permits

Notably, single-family permits were down 5.5% compared with February.

By region, single-family permits were down 19.0% in the Northeast, down 4.7% in the Midwest, down 4.9% in the South, and down 3.6% in the West.

U.S. Housing Starts  increased 1.9% month-over-month to a seasonally adjusted annual rate of 1.319 million units (I had forecast 1.268M).

Starts

By region, single-family starts were down 9.4% in the Northeast, up 37.7% in the Midwest, down 9.8% in the South, and down 8.1% in the West.

The takeaway from the report is that the monthly increases were driven entirely by multi-unit dwellings. Single-family starts were down 3.7% which is disappointing given the supply shortage of single-family homes.

What to Watch for This Week

U.S. Existing Home Sales were running at an annual rate of 5.54M units in February and I am looking for the March data to show some very modest improvement with sales rising to an annual rate of 5.57M units.

The Case Shiller Index for US home prices showed the 20-City index up by 6.4% year-over-year in January and the February number is likely to remain at its current level.

U.S. New Home Sales in February were measured at an annual rate of 618,000 units. The March figure is likely to some improvement to a seasonally adjusted annual rate of 631,000 units.

Consumer Confidence dropped to 127.7 in March and the April figure will likely also be lower. Any number above 126.1 will be a positive.

The advanced estimate for US GDP in Q-1 should show the national economy grew by 2.1% – down from the 2.9% seen in Q-4 of 2017.

The final Consumer Sentiment number for April should have increased from the initially reported 97.8. I am expecting to see 98.0.

The Weekly Economic & Real Estate Forecast – 04/16/18 to 04/20/18

What I Saw Last Week

Inflation, as measured by the Consumer Price Index, dropped by 0.1% in March – I had forecast an increase of 0.1% – while core inflation matched my call for an increase of 0.2%.

CPI

On a 12-month basis, total CPI is up 2.4%, versus 2.2% in February and the 1.6% average annual rate over the past 10 years. Core CPI is up 2.1% over the last 12 months, versus 1.8% in February. Notably, that is the highest year-over-year change in core CPI since February 2017 and exceeded the 1.8% annual average over the past 10 years.

The takeaway from the report is that it showed a firming (though not scary) inflation trend that will keep the Federal Reserve wedded to its tightening bias and belief that at least two more rate hikes are warranted this year.

Consumer Sentiment in early April checked in at 97.8 (from 101.4), below my forecast for a smaller drop to 100.4.

The Current Economic Conditions Index dropped from 121.2 to 115.0 and the Index of Consumer Expectations slipped from 88.8 to 86.8.

Sentiment

According to the report, the data is consistent with a growth rate of 2.7% in consumption from mid-2018 to mid-2019. The takeaway from the report is that the monthly drop was due to worries about trade policies and expectations for rising interest rates.

What to Watch for This Week

Total U.S. Retail Sales dropped by 0.1% in February while core sales rose by 0.2%.  I am looking for a turnaround in the total sales number when the March figures are released on Monday.  Look for total sales to have risen by 0.4% and core sales again up by 0.2%.

The NAHB Housing Market Index was measured at 70 in March and the April number should remain at the same level.

U.S. Building Permits ran at an annual rate of 1.298 million units in February and the March number is likely to be somewhat higher. My forecast is for an increase to an annual rate of 1.315 million units.

U.S. Housing Starts were measured at an annual rate of 1.280 million units in February and the March number should be around 1.268 million units.

The Weekly Economic & Real Estate Forecast – 04/09/18 to 04/13/18

What I Saw Last Week

U.S. Construction Spending in February met my forecast with an increase of 0.1% following an unchanged level for January.

Con Spend

The February report featured a 0.7% increase in total private construction spending but a 2.1% drop in total public construction spending.

Notably, public construction spending was down in all sectors except for water supply (+1.3%). A 0.2% decline in highway and street spending and a 0.5% decline in educational spending were the biggest drags on the sector. The growth in private construction spending was led by a 1.5% jump in non-residential spending with the biggest growth drivers being power (+0.9%), commercial (+1.2%), manufacturing (+1.2%), and office (+6.5%). In aggregate, residential spending rose just 0.1%.

On a year-over-year basis, total construction spending is up 3.0%, with public construction spending up by 1.6% and private construction spending up by 3.4%.

The takeaway from the report is that construction spending growth continues to run at a relatively slow pace, which is an inhibitor of stronger overall growth.

The March Non-Farm Payroll report was a mixed bag. There was surprising weakness with only 103,000 jobs added (I had forecast a more robust 175,000) but a solid 0.3% increase in average hourly earnings. (The increase in wages left average hourly earnings up by 2.7% year-over-year.)

NF Payrolls

February non-farm payrolls revised up to 326,000 from 313,000 and the January number was revised down to 320,000 from 239,000.

The labor force participation rate was 62.9% in March, versus 63.0% in February as the civilian labor force dropped by 158,000 and the number of persons not in the labor force increasing by 323,000. The decrease in the number in the labor force reflected a 37,000 decrease in the number of persons employed and a 121,000 decrease in the number of persons unemployed over the month.

The takeaway from the report is that it was neither too hot nor too cold to provide a clear basis for the Federal Reserve to re-think its outlook for monetary policy. At the same time, I believe that it will temper the market’s concerns about the prospect of a fourth rate hike this year.

The Unemployment Rate remained at 4.1% – I had forecast it to have dropped to 4.0%.

U Rate

Persons unemployed for 27 weeks or more accounted for 20.3% of the unemployed versus 20.7% in February and the U-6 unemployment rate (which accounts for unemployed and underemployed workers) dropped to 8.0% from the February figure of 8.2%.

Consumer Credit rose by $10.6B in February, well below my forecast for $15B, after increasing an upwardly revised $15.6B (from $13.9B) in January.

Credit

The growth in February was driven almost entirely by nonrevolving credit, which was up $10.5B from January to $2.837 trillion. Revolving credit increased by $0.1B to $1.031 trillion.

Consumer credit increased at a seasonally adjusted annual rate of 3.25% in February, with revolving credit increasing at an annual rate of 0.25% and non-revolving credit increasing at an annual rate of 4.5%.

What to Watch for This Week

Inflation, as measured by the Consumer Price Index, rose by 0.2% in February and I anticipate that the March figure will show infliation risin gby 0.1% with the core rate up by 0.2%.

Consumer Sentiment in early April is likeluy to have dropped to 100.4 from the final March figure of 101.4.

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