What I Saw Last Week

Income & Spending data for U.S. households in January showed personal income rising by 0.3% for the second consecutive month – I had forecast a 0.4% increase – while spending contracted by 0.2% – slightly worse than my call for a 0.1% drop.

Income and spendingIncome and spending2

According to the January employment report, aggregate wages rose by 0.7%. That was in-line with the 0.6% increase in wages and salaries in the income data. Lower prices, namely from the energy sector, led to a second consecutive month of personal spending declines.

The big story in spending is actually the lack of demand given the increase in income and big declines in prices. Instead of spending this new found income, household are allocating more toward savings. As shown above, the personal savings rate increased 5.5% in January from 5.0% in December. That was the highest savings rate since December 2012 when expiring tax breaks resulted in sizable profit taking in the equity market.

U.S. Construction Spending in January dropped by 1.1% – I had forecast a rise of 0.2%.

Construction SpendingConstruction Spending2

Private construction spending declined 0.5% in January after increasing 0.4% in December.

The entire decline in private construction came from the non-residential sector, which declined 1.6% in January. Nearly every sub-sector in the non-residential space declined on a month-over-month basis in January. That included a 5.7% decline in commercial, a 4.8% decline in lodging, and a 1.5% decline in commercial. One of the few bright spots was manufacturing construction, which increased 4.2%.

Private residential construction increased 0.6%. Spending on new structures increased 0.8%, while spending on home improvement projects increased 0.1%.

U.S. Initial Unemployment Claims increased to 320,000 for the week ending February 28 from an unrevised 313,000 for the week ending February 21. I had called for a drop to 295,000.

Initial Claims

The current level represents the highest initial claims reading since May 2014 when it reached 327,000. Interestingly, the Department of Labor reported that no special factors impacted last week’s claims reading.

Furthermore, a close look at the state-by-state changes does not point toward an increase in layoffs in the energy sector or in any other specific sector for that matter. Without any clear outliers, the rise in claims over the last two weeks cannot be easily dismissed. I will be watching!

The Northwest Multiple Listing Service released its data on local housing transactions/prices in February and, as I had forecast, listings improved but very marginally. Sales rose by 5.4% m/m and are 12.3% higher than a year ago. Sale prices rose by 1.3% m/m and are, on average, 4.5% higher than a year ago.

MLS ActiveMLS SalesMLS Sale Prices

I would categorize this report as being, essentially, as expected. Where I continue to have concern is that listing inventory is 12.9% lower than seen in February of 2014 and, with sales up by 12.3% versus a year ago, this is a trend that cannot continue. Buyers are getting very frustrated with the lack of choice in the market and this is putting upward pressure on prices.

February U.S. Non-Farm Payrolls blew out my forecast for an increase of 240,000 as the country added 295,000 new jobs.

Non-Farm Payrolls

Unfortunately, it is difficult to label this report as good. Headline payrolls topped expectation, which is obviously a good result. However, average hourly earnings increased marginally (0.1%) after growing by 0.5% in January.

Lackluster wage growth combined with the improvement in payrolls led to a 0.4% increase in aggregate wages. To put that in perspective, even after the downward revision to the January payroll numbers, aggregate income increased a much stronger 0.7% last month.

Since consumption growth, and economic growth in general, follow the trend in income, the February employment results were decidedly worse than January even though this month’s headline payroll number far exceeded both expectations and the prior level. That is not to say that the employment data should be labeled as bad. It’s just not nearly as strong as the headline suggested.

The U.S. Unemployment Rate fell to 5.5% which was better than my forecast for a drop to 5.6%.

U.S. Unemployment RateParticipation Rate

Consumer Credit increased by $11.6B in January, up from an upwardly revised $17.8B (from $14.8B) in December. I had forecast an expansion of $13B.

Consumer CreditConsumer Credit2

Typically, consumer credit goes through sizable revisions before the final numbers are released. Any future revision, however, is unlikely to alter the current trends. Revolving credit declined by $1.2B in January, from $889B in December to $887.9B.

Non revolving credit increased to $2,440B in January from $2,427.3B in December, a gain of $12.7B.

Not strong numbers; however, consumer credit has increased by an average of $14.6B over the last three months.

Data on local building permit activity was released last week which showed that in January 330 single family permits were issued in King County and 158 permits issued in Snohomish County.

Local Permits

As the chart above shows, 2014 was hardly a banner year with permit activity modestly higher in Snohomish County, but 5% lower in King County.

Limited land availability is having an effect and this led to lower permits, but higher prices for land. In as much as I had hoped to see our builders take advantage of the nascent demand that is out there, they are having their own supply side issues!

What to Watch for This Week


Washington State Employment data for the Seattle metro area and countywide is released on Tuesday. I would be surprised to see an annual growth rate in the Seattle area of less than 50,000 jobs and an increase in January after the modest drop of 400 jobs seen between November and December 2014.

The local unemployment rate should also drop from 4.6% to 4.5%.

U.S. Initial Unemployment Claims should come back down. Look for 306,000.

U.S. Retail Sales should turn around after the 0.8% contraction seen in January. Look for an expansion of 0.4%.

Consumer Sentiment was at 95.4 at the end of February. Look for the early March figure to come in at 95.8.