The Weekly Economic & Real Estate Forecast – 9/18/17 to 9/22/17

The total Consumer Price Index rose by 0.4% in August (I had forecast 0.3%) with the core rate exactly matching my forecast for an increase of 0.2%.

CPI

On a year-over-year basis, the all items index increased 1.9%, versus 1.7% for the 12 months ending July, while core CPI remained at 1.7% for the fourth month in a row.

The key takeaway from the report is that the year-over-year bump in headline inflation toward the Fed’s 2.0% target will prompt the market to consider more carefully the prospect of another rate hike before the end of the year.

U.S. Retail Sales declined 0.2% (I had forecast +0.2%) on the heels of a downwardly revised 0.3% increase (from 0.6%) for July.  Core sales (ex-auto) rose by 0.2% (I had forecast 0.5%) following a downwardly revised 0.4% increase (from 0.5%) for July.

Retail Sales

The weakness in August was paced by a 1.6% decline in auto sales, which were impacted partly by Hurricane Harvey, as well as a 1.1% decline in non-store retailers, which was an expected letdown after Amazon’s Prime Day boosted July sales.

The takeaway from the report is that it will temper forecasts for Q3 consumer spending as core retail sales, which exclude auto, gasoline station, building equipment and materials, and food services and drinking places sales, declined 0.2%.

The preliminary University of Michigan Consumer Sentiment Index for September checked in at 95.3 (I had forecast 95.5) versus the final reading of 96.8 for August.

Sentiment

The slight dip in the sentiment reading for September was spurred by concerns related to the economic impact Hurricanes Harvey and Irma might have. Those views were reflected in the Index of Consumer Expectations, which dropped from 87.7 to 83.4.

The Index of Current Economic Conditions jumped from 110.9 to 113.9, which is the highest level since November 2000.

The takeaway from the report is that consumers’ assessment of their financial situation is the best it has been in more than a decade.

What to Watch for This Week

The NAHB Housing Market Index Was measured at 67 in August and the September number is likely to disappoint.  My call is for a drop to 64 as builders still struggle with costs.

U.S. Housing Starts and Building Permits, although generally trending higher, are still not coming in at the levels sufficient to meet demand.  Look for the August figures to be a mixed bag with starts up to an annual rate of 1.170M units (from 1.155M) and permits pulling back from an annual rate of 1.223M to 1.212M.

U.S. Existing Home Sales slipped 1.3% in July to an annual rate of 5.44M units. My call is for the August number to come in at 5.42M.

The Federal Reserve meet this week and, given the lack of wage growth and inflation, will decide not to raise the key federal funds rate.

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The Weekly Economic & Real Estate Forecast – 9/11/17 to 9/15/17

What I Saw Last Week

Total Consumer Credit rose by $18.5B in July – I had forecast a more modest rise of $11.9B – after increasing a downwardly revised $11.9 billion (from $12.4B) in June.

Credit

The growth in July was driven by non-revolving credit, which was up $15.8B from June to $2.759T, and revolving credit, which increased by $2.6B to $991.9B.

Consumer credit increased at a seasonally adjusted annual rate of 6% in July with revolving credit increasing at an annual rate of 3.25% and non-revolving credit increasing at an annual rate of 7%.

Provided consumers weren’t making greater use of revolving credit lines to cover basic needs due to a shortfall in income, this report can ostensibly be looked upon as a good sign for the economy since the expansion of credit is an integral contributor to economic growth. It is hard to say, though, because there isn’t enough detail in the report and it is often subject to large revisions, which is why the market rarely shows much reaction to it.

What to Watch for This Week

Inflation – as measured by the Consumer Price Index – remains benign; however, we are likely to see a very modest increase when the August numbers are released.  Look for total inflation to have risen by 0.3% and the core rate up by 0.2%.

U.S. Retail Sales were better than expected in July with an increase of 0.6%. I expect to see a bit of a pullback in the August numbers with total sales up by 0.2% but core sales (ex-auto) should be up by 0.5%.

Consumer Sentiment in August was measured at 96.8 and I believe that the early September figure will come in at 95.5.

The Weekly Economic & Real Estate Forecast – 9/04/17 to 9/08/17

What I Saw Last Week

The Case Shiller Index for June showed annual price growth for the 20-City Index exactly meeting my forecast with an increase of 5.7%.

CS

House price appreciation reflects both recovering demand and low inventory. National payroll employment continues to grow and a healthier labor market is supportive of stronger housing demand. However; on the supply side, inventory of existing homes declined and the July unsold inventory was low, at 4.2 months and when we combine economic growth with low inventories, it is natural to see prices appreciate at above average rates.

Seasonally adjusted, 9 of the 20 cities in the composite reported price increases in the year ending June 2017, down from 14 in May. Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20 cities covered.

Both the number of homes for sale and the number of days a house is on the market
have declined for four to five years and, given current economic conditions and the tight housing market, an immediate reversal in home price trends appears unlikely.

Consumer Confidence in August rose to 122.9, up from a downwardly revised 120.0 (from 121.1) in July. I had forecast a drop to 120.3.

Confidence

The bulk of the improvement in August was tied to the Present Situation Index, which rose from 145.4 to 151.2. The Expectations Index rose from 103.0 to 104.0.

Of note is that the percentage of respondents stating jobs are plentiful rose from 33.2% to 35.4%, while those claiming jobs are hard to get dropped from 18.7% to 17.3%.

The takeaway from the report is that consumer confidence remained high as the current labor market assessment overshadowed a lot of the political drama that has called into question the ability to implement a tax reform plan this year.

The second estimate for US GDP in the second quarter showed the economy expanding at 3.0% from the initial estimate of 2.6% – I had forecast a more modest increase to 2.7%.

GDP

The upward revision stemmed from upward revisions to personal consumption expenditures (from 2.8% to 3.3%) and gross private domestic investment (from 2.0% to 3.6%), which was led by non-residential fixed investment (from 5.2% to 6.9%). Government spending was revised down (from 0.7% to -0.3%).

Of note is that the overall GDP growth rate was the first with a 3-handle on it since the first quarter of 2015!

The second estimate for second quarter GDP will feed a good economic narrative and the takeaway from the report is that it was driven by a pickup in both consumer and business spending, which is typically a good mix for accelerating economic growth.

Income & Spending both rose in July with incomes up by 0.4% (I had forecast 0.3%) and spending up by 0.3% (I had forecast 0.4%).  The personal savings rate dipped from 3.6% to 3.5%.

Income

PCE (Personal Consumption Expenditures) price inflation remains well below the Fed’s longer run target of 2.0%, yet it is the dip in the core inflation rate that stands out today because that can’t be blamed on volatile energy prices.

Real personal consumption expenditures increased 0.2%, which will be a positive input for Q-3 GDP forecasts, and rose 2.7% year-over-year versus 2.6% in June. Real disposable personal income increased 0.2% and is up 1.3% year-over-year versus 1.2% in June.

The takeaway from the report was that inflation pressures remained subdued, which suggests to me that expectations for another rate hike this year will also remain subdued.

The NAR Pending Home Sales Index decreased in July for the fourth time in five months, and now has decreased year-over-year in three of the past four months.

The Pending Home Sales Index, a forward-looking indicator based on signed contracts decreased 0.8% to 109.1 in July from a downwardly revised 110.0 in June, and fell 1.3% below a year ago. I had forecast a less substantial 0.5% drop.

Pending Index

The PHSI increased 0.6% in the West in July, but fell 0.3% in the Northeast, 0.7% in the Midwest and 1.7% in the South. Year-over-year, the PHSI increased 2.4% in the Northeast, but fell 0.2% in the South, 2.8% in the Midwest and 4.0% in the West.

The NAR reported that although buyer traffic remains higher than a year ago, house hunters face limited options. While the median sales price increased 38% over the past five years, incomes have increased only 12%, putting pressure on affordability, especially for prospective first-time buyers. Existing sales declined in July, and new home sales also faltered, although they remain up 9.2% for the year. However builder confidence jumped up in August, suggesting that new residential construction will continue its upward trend and address the tight inventory of homes for sale.

US Non-Farm Payrolls grew by a somewhat disappointing 156,000 in August (I had forecast a more robust 183,000).

Payrolls

Over the past three months, job gains have averaged 185,000 per month. July non-farm payrolls were revised down to 189,000 from 209,000 and the June number was also revised down to 210,000 from 231,000.

August private sector payrolls increased by 165,000 with July private sector payrolls revised down to 202,000 from 205,000 and June private sector payrolls revised up to 207,000 from 194,000.

The takeaway here is that, historically, August payroll numbers have been the most volatile due to seasonal distortions, often coming in weak at first reading only to be revised higher. For example, in 2011, the initial reading came in at zero, but later was revised up to 104,000. In 2016, the first report showed 151,000, while the final number moved up to 176,000.

The number, therefore, should not be taken as a sign of slowing growth.  At least not yet!

The Unemployment Rate in August rose to 4.4% (I had forecast it to have remained at 4.3%).

U RAte

Persons unemployed for 27 weeks or more accounted for 24.7% of the unemployed versus 25.9% in July. The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, held steady at 8.6%.

The takeaway from the report is that wage inflation is still not picking up despite the low unemployment rate. That will keep the “Goldilocks” narrative in place, which has served as a perfectly-cooked bowl of porridge for a stock market that has feasted on a backdrop of modest growth and low inflation.

US. Construction Spending dropped by 0.6% in July (I had forecast a 0.5% increase).

Con Spend

The July decline was driven by a 1.4% decrease in total public construction spending and a 0.4% decrease in total private construction spending.

On the public side, non-residential spending dropped 1.4%, with almost every component category seeing a decline in spending. The lone exceptions were Power (+11.6%), Public Safety (+5.8%), and Highway and Street spending (+0.1%).

On the private side, residential spending increased 0.8% with new single-family spending increasing by a like amount to offset a 0.8% decline in non-residential spending, which was fueled by declines in all component categories.

Total residential construction spending increased 0.8% in July while total nonresidential spending fell 1.7%.

On a year-over-year basis, total construction spending is up just 1.8%, with public construction spending down 5.6% and private construction spending up 4.1%.

The takeaway from the report is that the decline in construction spending will act as a drag on Q-3 GDP forecasts.

The final August estimate for Consumer Sentiment came in at 96.8 (I had forecast a drop to 97.1) from an originally reported 97.6.

Sentiment

The Current Economic Conditions Index dipped to 110.9 from the preliminary reading of 111.0. The final reading for July was 113.4.  The Index of Consumer Expectations fell to 87.7 from the preliminary reading of 89.0. The final reading for July was 80.5.

The takeaway from the report is that consumer sentiment remains at high levels despite the (geo)political drama as consumers reportedly have maintained a favorable assessment of their own financial situations.

What to Watch for This Week

Total Consumer Credit rose by $12.4B in June and I expect to see the July number come in at around $11.9B.

 

The Weekly Economic & Real Estate Forecast – 8/27/17 to 9/01/17

What I Saw Last Week

U.S. New Home Sales in July were at a seasonally adjusted annual rate of 571,000, down 9.4% from the revised June rate of 630,0000 (from 610,000) and down 8.9% from the same period a year ago.

New sales

New Sales2

It is of note that, taking into account the upward revisions for the prior three months (which cumulatively added 46,000 new home sales) the July sales rate was not as big of a shortfall as it appears at first blush.

On a seasonally adjusted basis, the only region that saw a month-over-month increase in sales was the Midwest (+6.2%). The South and the West, which are the largest regions for new home sales, saw monthly declines of 4.1% and 21.3%, respectively. The Northeast was down 23.8%.

Clearly, limited inventory at lower price points and higher average selling prices continued to act as headwinds for new home sales with the median sales price up 6.3% year-over-year to $313,700 and the average sales price up 4.6% to $371,200. Although there were fewer homes sold in July versus June at prices under $399,999, that share of new homes sold in July held steady at 70%.

Based on the July sales pace, the inventory of new homes for sale stands at a 5.8-months’ supply versus 5.2 months for June.

The takeaway from the report is that new home sales growth is continuing at a frustratingly slow pace despite the tailwinds of low mortgage rates and low unemployment.

U.S. Existing Home Sales slipped 1.3% in July to a seasonally adjusted annual rate of 5.44M units. Although the July’s sales pace was 2.1% above a year ago, it still represents the lowest pace of sales seen this year.

Existing sales

Existing sales $

The median existing home price for all housing types increased 6.2% to $258,300, which was the 65th straight month of year-over-year gains. The median existing single-family home price was $260,600, up 6.3% from a year ago.

The inventory of homes for sale (1.92 million) is 9.0% lower than the same period a year ago and has fallen year-over-year for 26 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, versus 4.8 months a year ago.

Existing home sales declined 14.5% month-over-month in the Northeast and fell 5.3% in the Midwest. Sales were up 2.2% month-over-month in the South and up 5.0% in the West.

The takeaway from the report is that neither the availability nor the affordability of homes is high, which is keeping sales activity from being all that it could otherwise be.

What to Watch for This Week

Case Shiller Index data for June to show annual price growth for the 20-City Index to match the May rate of 5.7%.

Consumer Confidence in August is likely to pull back a little on various geopolitical concerns.  Look for it to come in at 120.3.

The second estimate for US GDP in the second quarter should show the economy having grown by 2.7% – up from the initial estimate of 2.6%.

Income & Spending have been a mixed bag over the past few months but I anticipate that we will see improvement in the July data. Look for incomes to have risen by 0.3% and spending 0.4% higher.

The NAR Pending Home Sales Index for July is likely to show a pullback from the 1.5% growth seen in June.  My call is for 0.5% as a function of persistent low inventories.

U.S. Non-Farm Payrolls are expected to have risen by 183,000 in August and the Unemployment Rate is likely to remain at 4.3%.

U.S. Construction Spending dropped by 1.3% in June and the July figure should show improvement with an increase of 0.5%.

The early August estimate for Consumer Sentiment came in at 97.6 and I expect to see the final figure drop back a little to 97.1.

The Weekly Economic & Real Estate Forecast – 8/07/17 to 8/11/17

What I Saw Last Week

The NAR Pending Home Sales Index for June rose by 1.5% to 110.2 from an upwardly revised 108.6 (from 108.5) – I had forecast a 1.1% increase.

Pending Index

In June, only the Midwest saw a decline, with pending sales down 0.5% for the month and 3.4% for the year. Pending sales in the Northeast edged up 0.7% during June and are 2.9% higher compared to a year ago. In the South, pending sales rose 2.1% and stand 2.6% higher compared to last June. And in the West, sales rose 2.9% in June, but are 1.1% lower than a year ago.

The U.S. housing market is increasingly confronted with a shortage of properties listed for sale which can be attributed to a number of reasons. Investors that bought foreclosed houses during the downturn are now renting them at a tidy profit, while many existing homeowners say they cannot afford the down payment to sell their house and buy a more expensive property.  additionally, construction costs are holding many builders back from significantly adding to supply.

As a consequence, prices are climbing faster than wages while number of homes listed for sale has plunged. All of this limits just how much sales volumes can advance.

Income & Spending in June was a mixed bag with incomes unchanged but spending up by 0.1% (I had forecast incomes to have risen by 0.3% but spending exactly matched my forecast).

Income

A contraction in personal dividend income (-3.0%) and personal interest income (-1.0%) were key drags on total income in June. Their negative impact was offset to a large extent, however, by a 0.4% increase in wages and salaries.

Real disposable personal income was up 1.4% year-over-year (vs. 1.4% in May) while real PCE (Personal Consumption Expenditures) was up 2.4% (vs. 2.7%) in May.  The personal savings rate as a percentage of disposable income dipped to 3.8% from 3.9% in May as a result of flat income and a slight increase in spending.

The takeaway from the report is that the inflation data supported the market’s preconception that the Fed is unlikely to raise the target range for the fed funds rate at its September meeting.

U.S. Construction Spending declined 1.3% month-over-month in June (I had forecast +0.5%) after an upwardly revised 0.3% increase (from 0.0%) for May.

Con Spend

The June decline was driven by a 5.3% decrease in total public construction spending and a 0.1% decrease in total private construction spending.

On the public side, non-residential spending dropped 5.4%, with every component category seeing a decline in spending. Highway and street spending was down 6.6% while educational spending fell 5.5%.  On the private side, residential spending declined 0.2% with new multi-family spending down 2.9%. The decline in residential spending was offset slightly by a 0.1% increase in non-residential spending. Altogether, residential spending decreased 0.3% in June while non-residential spending fell 2.0%.

On a year-over-year basis, total construction spending is up just 1.6%, with public construction spending down 9.5% and private construction spending up 5.3%.

The takeaway from the report is that the 1.6% year-over-year growth rate in total construction spending is the second-lowest growth rate since 2011.

Non-Farm Payrolls continue to show a trend of strong job growth but lackluster wage growth remains an issue.

Payrolls

July non-farm payrolls rose by 209,000 (I Had forecast a more modest 181,000) with the average over the past 3-months coming in at a very respectable 195,000. Of note is the upward revisions to the June numbers (231,000 from 222,000) but the May figure was lowered to 145,000 from 152,000.

July private sector payrolls increased by 205,000 with the June figure revised to 194,000 from 187,000 and the May number revised to 153,000 from 159,000.

Monthly employment data, released by the BLS Establishment Survey, showed that construction employment rose by 6,000 over the month.

Residential construction employment is now at 2.7 million workers, broken down as 767,000 builders and 1.93 million residential specialty trade contractors. The 6-month moving average of job gains in residential construction is now was close to 3,000 a month and, over the past 12- months home builders and remodelers have added 118,300 jobs. Since the low point of industry employment following the Great Recession, residential construction has gained 717,200 positions but is still some time away from reaching full employment in the housing sector.

The key takeaway from the report is that it fit that sweet spot yet again for the stock market where job growth was strong but wage growth was not.  My assumption, therefore, is that the Fed will continue to wait on its next rate hike.

With the increase in jobs, the Unemployment Rate met my forecast and dropped back down to 4.3%.

U RAte

Persons unemployed for 27 weeks or more accounted for 25.9% of the unemployed versus 24.3% in June. The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, held steady at 8.6% while the labor force participation rate increased to 62.9% in July from 62.8% in June.

What to Watch for This Week

Consumer Credit rose by $18.4B in May and I am expecting to see the June figure to pull back a little to $16.2B.

Inflation, as measured by the Consumer Price Index, has remained benign but we are likely to see a modest increase when the data is released on Friday.  Look for the total and core rates to have risen by 0.2%.

As a side note, I am heading out of the country for my annual kayaking adventure in Northern British Columbia this week.  As such, I am afraid that you won’t see another forecast until my return on August 21st!

The Weekly Economic & Real Estate Forecast – 7/31/17 to 8/04/17

What I Saw Last Week

U.S. Existing Home Sales fell 1.8% in June to an annual rate of 5.52M units – I had forecast a drop to 5.58M units.

Existing sales

It is clear that high prices and limited supply crimped sales activity in June with the median existing home price for all housing types up 6.5% to $263,800 – a new peak price and the 64th straight month of year-over-year gains. The median existing single-family home price came in at $266,200, up 6.6% from a year ago.

Median home prices were up in all regions, yet only the Midwest saw an increase in existing home sales (+3.1%) in June. Sales dropped 2.6% in the Northeast, 4.7% in the South, and 0.8% in the West.

The inventory of homes for sale (1.96M) is 7.1% lower than the same period a year ago and has now fallen year-over-year for 25 consecutive months. Unsold inventory is at a 4.3-month supply at the current sales pace, versus 4.6 months a year ago and the 6 month supply typically associated with a balanced market.

First-time buyers represented 32% of sales in June, down from 33% in May and matching that seen a year ago.  All-cash sales were 18% of transactions in June, down from 22% a year ago and now at the lowest rate seen since June 2009.

The takeaway from the report is that neither the availability, nor the affordability, of homes is high, which is keeping sales activity from being all that it could otherwise be.

The Case Shiller Index rose by 5.7% year-over-year through May matching the annual rate seen the previous month – I had anticipated a more robust 6.2% increase.

CS

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities. In May, Seattle led the way with a 13.3% year-over-year increase, followed by Portland at 8.9%, and Denver overtaking Dallas with a 7.9% increase. Nine of the 20 cities in the study reported greater price increases in the year ending May 2017 versus the year ending April 2017.

Home prices continue to climb and outpace both inflation and wages. Although housing is certainly not repeating the bubble period of 2000 through 2006 – as price increases vary across the country unlike the earlier period when rising prices were almost universal – the number of homes sold annually is 20% less today than in the pre-bubble period and the months’ supply is declining, not surging. The limited supply of homes for sale (only about four months’ worth given current demand) is the most palpable cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.

For the last 19-months, Seattle or Portland have been the markets with the fastest rising home prices based on 12-month gains. Since the national index bottomed in February 2012, San Francisco has seen the largest gains. Using Census Bureau data for 2011 to 2015, it is possible to compare these three cities to national averages. The proportion of owner-occupied homes is lower than the national average in all three cities with San Francisco being the lowest at 36%, Seattle at 46%, and Portland at 52%. Nationally, the figure is 64%.

The key factor for the rise in home prices is population growth from 2010 to 2016: the national increase is 4.7%, but for these cities, it is 8.2% in San Francisco, 9.6% in Portland and a remarkable 15.7% in Seattle. It is clear that a larger population, combined with more people working, leads to higher home prices.

Consumer Confidence in July was measured at 121.1 – contradicting my forecast for a drop to 116.8 – from a downwardly revised 117.3 (from 118.9) in June.

Confidence

The Present Situation Index increased from 143.9 to 147.8, which is a 16-year high, while the Expectations Index rose from 99.6 to 103.3.

Of note is that consumers’ outlook for the labor market improved. The proportion expecting more jobs in the months ahead was unchanged at 19.2%, but those anticipating fewer jobs decreased from 14.6% to 13.3%. Consumers, however, were not as upbeat about their income prospects as in June. The percentage of consumers expecting an improvement in their income declined moderately from 20.9% to 20%, while the proportion expecting a decline increased from 9.3% to 10%.

The takeaway from the report is that the uptick in July was forged by a rise in sentiment for current conditions, as well as the short-term outlook.

U.S. New Home Sales for June were at a seasonally adjusted annual rate of 610,000, exactly matching my forecast.

New sales

The June sales pace was 0.8% above the downwardly revised pace of 605,000 (from 610,000) for May but up 9.1% year-over-year.

New home sales were flat in the Northeast (after a 7.9% increase in May), up 10% in the Midwest (following a 19% decline in May), down 6.1% in the South (after a 6.8% increase for May), and up 12.5% in the West (notably on the heels of the 12% gain seen in May).

New home inventory also rose, with the number of homes for sale up 1.1% to 272,000 versus the number seen in June. This level is also 11.9% above the inventory level seen in June of 2016. As the pace of growth in the number of homes for sale exceeded the number that were sold, the months’ of supply also rose. When compared to June, the months’ supply increased by 1.9% to 5.4 months – 3.8% higher than one year ago. Nevertheless, the months’ supply (which measures the number of months it would take to exhaust the inventory at the current sales pace) remains below the healthy 6 month benchmark. Also of note is that homes priced under $400,000 accounted for 69% of new homes sold in June, unchanged from May but clearly indicating continued strength in the more affordable price points.

The key takeaway from the report is that sales activity was subdued month-over-month despite a 3.4% drop in the median sales price of $310,800. The average sales price, however, was up 4.2% to $379,500, which points to the affordability factor acting as a sales constraint.

As I had anticipated, the Federal Reserve decided not to raise the Fed Funds Rate – but I still stand by my opinion that they will raise rates one more time this year.

Following its two-day policy meeting, the Federal Open Market Committee released a statement that contained key language that points to a likely rate increase in September and, at that time, they will begin rolling off the $4.5T portfolio of bonds it has accrued on its balance sheet (mostly from the years following the crisis and the Great Recession it generated).

Real US GDP in the second quarter was estimated to have increased at a seasonally adjusted annual rate of 2.6% (I had forecast 2.8%) following a downwardly revised 1.2% increase (from 1.4%) for the first quarter.

GDP

The largest contributors to the increase in Q-2 GDP were personal consumption expenditures (+1.93%), gross private domestic investment (+0.34%), and net exports (+0.18%).

Government spending added 0.12%, with federal spending contributing 0.15% and state and local spending subtracting 0.02%. Defense spending, which contributed 0.20%, accounted for the entirety of the positive contribution from federal spending.

In conjunction with the Q-2 GDP report, the BEA released annual benchmark revisions for 2014 through the first quarter of 2017. With the revisions, it was said that real GDP from 2013 to 2016 increased at an average annual rate of 2.3% versus 2.2% with the previously published estimates. From the fourth quarter of 2013 to the first quarter of 2017, real GDP increased at an average annual rate of 2.1%, which was unchanged from previously published estimates.

The takeaway from the Q-2 GDP report, then, is that the average for the first half of 2017 was sub-par at 1.9%, which should continue to keep any concerns about the prospect of a near-term rate hike from the Fed under wraps.

The final Consumer Sentiment number for July came in at 93.4, up from the initial estimate of 93.1 but down from Junes reading of 95.1 – I had forecast no change.

Sentiment

The Current Economic Conditions Index edged up to 113.4 from the preliminary reading of 113.2, while the Index of Consumer Expectations increased to 80.5 from the preliminary reading of 80.2.

For perspective, the Index of Consumer Expectations stood at 90.3 in January which tells me that political partisanship continues to significantly influence consumers’ outlook.  That said, it would take a drop of another 10 points in the second half of 2017 for the downturn in the index to become more troublesome.

Despite the small decline, the takeaway from the report is that the Sentiment Index is still higher through the first seven months of 2017 than in any other year since 2004.

What to Watch for This Week

The NAR Pending Home Sales Index for May dropped 0.8% – look for a turnaround in the June numbers which should show a 1.1% increase.

Income & Spending is likely to continue its modest upward trend. Expect incomes to have risen by 0.3% in June with spending up by 0.1%.

U.S. Construction Spending was static on May and the June figure should be an improvement with total spending up by 0.5%.

Non-Farm Payrolls rose by 222,000 jobs in May and June will show the country having added an additional 181,000 positions.

With the increase in jobs, the Unemployment Rate is likely to drop back down to 4.3%.

The Weekly Economic & Real Estate Forecast – 7/24/17 to 7/28/17

What I Saw Last Week

The NAHB Housing Market Index fell two points to 64 in July from a downwardly revised 66 for June (I had forecast no change) and the index now stands at its lowest level since November 2016.

HMI

Builders are increasingly concerned over rising material prices – especially lumber – and this is hurting affordability, therefore slowing the market.

Among the sub-indexes, the current sales conditions index fell two points to 70 and the index measuring prospective buyer traffic edged down one point to 48. Meanwhile, the sales expectations index fell two points to 73.

The NAHB noted that the current sales conditions index has been at 70 or above for eight straight months, indicating strong demand for new homes; however, given the latest lukewarm numbers, the association suggested that builders need to manage supply-side costs to keep home prices competitive.

The survey includes a set of “special” questions on a topic of current interest to the housing industry which is worthwhile discussing as the June special questions asked builders about the supply and price of developed lots.

The data suggested 64% of builders reported that the overall supply of developed lots in their areas was low to very low (the same share as seen in May 2016), but up from a cyclical low of 43% seen in September 2012. This is noteworthy as it represents the largest share of builders reporting low to very low lot supply since the NAHB began periodically asking the question in 1997.

The takeaway here is that the continued low supply of developed lots is a hindrance to a faster housing recovery.

U.S. Building Permits rose 7.4% to a seasonally adjusted annual rate of 1.254M units (I had forecast an increase to 1.196M) from an unrevised 1.168M in May. Additionally, the May figure was revised higher to 1.122M from 1.092M.

Permits

Single-family permits were up in all regions: Northeast (+11.5%); Midwest (+11.1%); South (+1.8%); and the West (+3.3%).

It is noticeable that permits are now at the highest level seen since March and that single-family permits rose 4.1% following 3 months of declines.

U.S. Housing Starts jumped 8.3% in June to a seasonally adjusted annual rate of 1.215M – I had forecast an increase to 1.160M units – after being revised up to 1.122M (from 1.092M) in May.

Starts

Single-family starts increased in all areas except for the Midwest (-3.6%). They were up 9.3% in the Northeast, up 7.2% in the South, and up a whopping 10.6% in the West.

The takeaway from this report is that there was solid growth in both single-family starts (+6.3%) and permits for single-family homes (+4.1%), both of which are important given the supply constraints in the housing market that have crimped affordability for many prospective home buyers.

What to Watch for This Week

U.S. Existing Home Sales rose 1.1% to an annual rate of 5.62M units in May. Unfortunately, I see supply constraints negatively impacting the June number – expect it to come in at around 5.58M units.

The Case Shiller Index rose 5.7% year-over-year through April and I anticipate the May number coming in up 6.2%.

Consumer Confidence in June was measured at 118.9 and the July figure is likely to show a drop back to 116.8.

U.S. New Home Sales were running at an annual rate of 610,000 units in May.  Look for the June number to match the prior month.

The Federal Reserve meets this week and I expect that they will decide not to raise the Fed Funds Rate at this meeting; however, I still anticipate one more rate increase this year.

On Friday, we get the first estimate of US GDP in the second quarter of the year.  I think that we will see growth in the quarter come in at 2.8% – up from the 1.4% seen in Q1.

The final Consumer Sentiment number for July should match the early month figure of 93.1.

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