The Weekly Economic & Real Estate Forecast – 2/27/17 to 3/3/17

What I Saw Last Week

U.S. Existing Home Sales rose 3.3% in January to an annual rate of 5.69M units.  (I was expecting a less robust increase of 1.8% to an annual rate of 5.57M units.)  Single-family home sales jumped 2.6% to a seasonally adjusted annual rate of 5.04M units.

existing-sales

The median existing-home price for all housing types increased 7.1% to $228,900, marking the 59th consecutive month of year-over-year gains. The median existing single-family home price increased 7.3% year-over-year to $230,400.

Total housing inventory of 1.69 million existing homes available for sale was 7.1% lower than a year ago, marking the 20th straight month of a year-over-year decline. There is a 3.6-month supply of unsold inventory at the current sales pace, which is unchanged from December and the lowest level since January 2005.

The key takeaway from the report is that high prices and limited inventory continue to compress the affordability factor for prospective buyers, and have prevented existing home sales from being even stronger.

The final Consumer Sentiment number for February was revised up to 96.3 from 95.7.  I had expected a more modest increase to 95.8.

sentiment

The Current Economic Conditions Index was revised up to 111.5 (from 111.2) versus the final reading of 111.3 for January.  The Index of Consumer Expectations was revised up to 86.5 (from 85.7) versus the final reading of 90.3 for January.

The key takeaway from the report is that overall consumer confidence is high, yet there are clear splits along party lines with respect to the economic outlook. That understanding, it was noted, creates an expectation that there will be greater volatility and discretionary spending differences across subgroups.

Following a disappointing December, U.S. New Home Sales rebounded in January to a seasonally adjusted annual rate of 555,000 units. I had forecast an increase to 565,000.  That was a bit disappointing relative to my estimate, yet it was 3.7% above the December sales rate and 5.5% higher than seen a year ago.

new-sales

The median sales price increased 7.5% year-over-year to $312,900, while the average sales price slipped 1.3% to $360,900.

New home sales were up in all regions month-over-month, with the exception of the West (-4.4%), which might have been impacted by the inclement weather in California.

At the current sales pace, there was a 5.7-months’ supply of new homes for sale at the end of January, which is unchanged from December.

The takeaway from the report is that high prices continue to impede stronger sales activity at the lower end of the new home market. That point is borne out in the fact that homes priced $299,999 or less accounted for 44% of new homes sold in January 2017 versus 53% in January 2016.

 

What to Watch for This Week

The NAR Pending Home Sales Index for January will likely show a drop of 3% on the back of very low inventory levels.

The second estimate for GDP in the final quarter of 2016 should be revised up from the initial estimate of 1.9%. I am looking for growth of 2.1%.

Consumer Confidence in February is likely to pull back just a little. Expect to see it drop from 111.8 to 111.5.

Income & Spending in January will be mixed with incomes up by 0.4% and spending up by 0.3%.

U.S. Construction Spending in January should turnaround after having contracted by 0.2% in December.  Look for an expansion of 0.6%.

The Weekly Economic & Real Estate Forecast – 2/20/17 to 2/24/17

What I Saw Last Week

Inflation – as measured by the Consumer Price Index – for January rose by 0.6%, marking the largest increase since February 2013.  I had forecast a rise of 0.3%.  Core CPI, which excludes food & energy, rose by 0.3% – slightly above my forecast for a rise of 0.2%.

cpi

Total CPI is up 2.5% year-over-year, the largest 12-month increase since March 2012, while core CPI is up 2.3% versus 2.2% for the 12-month period ending in December.

A 7.8% increase in the gasoline index accounted for nearly half the increase in the all items index in January, but the indexes for shelter (+0.2%), apparel (+1.4%), and new vehicles (+0.9%) were also major contributors.

While the Fed’s preferred inflation gauge is the PCE Price Index, the key takeaway from the report is that consumer inflation pressures are rising, which in turn should increase the potential for a rate hike at the March meeting.

U.S. Retail Sales in January rose by 0.4% – I had expected an increase of 0.1% and core sales (ex-auto) also outperformed with an increase of 0.8% (I had forecast +0.4%).

retail-sales

Motor vehicle sales were down 1.4%, but otherwise, there were no glaring points of weakness in January retail sales, which got a nice boost from a 2.3% increase in gasoline station sales and a 1.4% increase in food services and drinking place sales.

The key takeaway from the report is that discretionary spending on goods picked up in January, which will compute into a positive input for first quarter GDP forecasts.

The NAHB Housing Market Index fell 2 points to 65 in February suggesting that builders in the newly built single family home market remain optimistic but the index is giving back part of its post-election surge.  I had forecast an increase to 68.

hmi

All three HMI components fell in February. The component gauging current sales conditions dipped one point to 71, and the index charting sales expectations in the next six months registered a three-point decline to 73. The component measuring buyer traffic dropped five points to 46.

While builders remain optimistic, I am seeing the numbers settling back into a normal range.

Declines were broad based across the index’s components. Prospective buyers’ traffic accounted for the bulk of the headline’s drop, as the measure fell 5 points on the month. Home builders continue to report difficulty reducing costs as supply side restrains, including labor shortages, are continuing to fuel price gains.

With much of the decline this month resulting from a decrease in buyer traffic, builders continue to struggle to minimize costs while dealing with supply side challenges such as a lack of developed lots.

U.S. Building Permits jumped 4.6% to a seasonally adjusted annual rate of 1.285 million – well above my forecast for growth of 1.7%.

permits

Total growth was driven by the multifamily sector which rose by 20%.  Single family permits dropped by 2.7% to 808,000. That said, permits for single-family homes were actually up in all regions, with the exception of the West, which saw a large 17.2% decline.

I am not overly worried about the slowdown in permit activity as the three-month rolling average for single family permits is now at a new post-recession high.

U.S. Housing Starts declined 2.6% in January to a seasonally adjusted annual rate of 1.246 million – I was expecting a more modest contraction of 0.5%.

starts

That decline, however, followed a sizable upward revision for December (from 1.226M to 1.279M) and it was offset somewhat by a 1.9% increase in single-family starts.

The number of units under construction at the end of the period was 1.069 million, which was 1.5% higher than the fourth quarter average. That will compute to a positive input for Q1 GDP forecasts.

Single-family starts were up in all regions, with the exception of the West, which saw a surprisingly large 18.6% drop in single-family starts.

The key takeaway is that, absent the December revision, starts would have increased month-over-month, which is to say the headline decline isn’t as disappointing as it might sound at first blush.

 

What to Watch for This Week

U.S. Existing Home Sales dropped by 2.8% in December to an annual rate of 5.49M.  I am hopeful that the January number will be better and that the report will show sales up by 1.8% to an annual rate of 5.570M units.

The final Consumer Sentiment number for February will show little change from the initial figure of 95.7.  My call is for 95.8.

U.S. New Home Sales dropped by 10.4% in December and I am looking for a turnaround in the January number.  My forecast is for a 5.6% increase to an annual rate of 565,000 units.

The Weekly Economic & Real Estate Forecast – 2/13/17 to 2/17/17

What I Saw Last Week

Total outstanding Consumer Credit rose by $14.2B in December – below my call for an increase of $19.4B – after increasing by an upwardly revised $25.2B (from $24.5B) in November.

credit

December marked the slowest pace of consumer credit expansion since February 2016.

The growth in December was paced by an $11.8B increase in non-revolving credit, which rose to $2.77T.  Revolving credit increased by $2.4B to $996B, which tied October 2016 as the smallest month-to-month increase since February 2016.

The key takeaway from the report is that consumer credit – both revolving and non-revolving – continued to expand, albeit at a slower pace, yet providing fuel for a potential increase in economic activity.

The preliminary reading for the February University of Michigan Consumer Sentiment Index checked in at 95.7 – below my expectation for a less severe drop to 97.9 (from 98.5).

sentiment

The pullback in February was related almost entirely to the Expectations Index, which slipped from 90.3 to 85.7 – the Current Economic Conditions Index slipped from 111.3 to 111.2.

The release pointed out that there is a sharp partisan divide when it comes to expectations. Specifically, Democrats’ Expectations Index is close to an historic low while Republicans’ Expectations Index is near an historic high.

I believe that the partisan divide could be a precursor of a more moderate pace of economic growth, yet much depends on actual spending activity. To that end, the report notes that negative expectations have more influence determining spending than positive expectations do, so the reminder was offered that forecasts for spending should take into account a higher likelihood of asymmetric downside risks.

However, while consumer sentiment faded, the key takeaway is that it is still high, as there have only been five higher readings in the past decade.

What to Watch for This Week

Inflation – as measured by the Consumer Price Index – has been rising steadily and this will continue.  Look for the overall rate of inflation to have risen by 0.3% in January with the core rate up by 0.2%.

U.S. Retail Sales disappointed in December with a rise of just 0.6%.  Unfortunately, I do not see a turnaround when the January data is released on Wednesday.  My forecast is for total sales to be up by just 0.1% with core sales (ex-auto) up by 0.4%.

The NAHB Housing Market Index dropped from 69 in December to 67 in January and my forecast is for it to rise by one point to 68.

U.S. Building Permits dropped by 0.2% in December and I am looking for a turnaround with permit issuance up by 1.7% to an annual rate of 1.23M units.

U.S. Housing Starts rose by 11.3% in December but this rate cannot continue.  Expect a modest contraction of 0.5% to an annual rate of 1.22M units, but we should see an increase of 2.5% for single family starts.

The Weekly Economic & Real Estate Forecast – 2/06/17 to 2/10/17

What I Saw This Week

The personal Income & Spending report for December in the US is apt to contribute to the FOMC’s belief that it has scope to raise the fed funds rate more than once this year with personal income up 0.3% (I had forecast +0.4%), bolstered by a 0.4% rise in wages and salaries. Personal spending increased 0.5% (I had called for +0.4%). Real PCE increased 0.3%, with goods spending up 0.5% and services spending up 0.3%.

The personal savings rate as a percentage of disposable income fell to 5.4% from 5.6%.

income

With spending rising faster than income, the drop in the personal savings rate suggests consumers were spending out of savings — something that wouldn’t typically be done unless it was out of necessity or consumers were feeling better about their income prospects.

The item of note when trying to foresee any upcoming Fed move was the PCE Price Index, which was up 1.6% year-over-year versus a 1.4% increase seen in November. That is tracking toward the Fed’s longer-run target of 2.0%, which is what Fed officials will want to see to justify further rate hikes.

The NAR Pending Home Sales Index continues to suggest growth in home sales and that buyers are out in force and snapping up homes just as fast as they come to market.

pending-index

According to the NAR, the December 2016 Pending Home Sales Index posted above its benchmark value of 100 for the 32nd straight month.

It’s not surprising that contract signings remain high. With current mortgage rates lingering just above 4.0% and rents rising, today’s market substantially favors home buyers in a big way – that is if they can find anywhere to buy.

The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb modestly higher borrowing costs. Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.

According to the Case Shiller Index, home prices continue to escalate at above average rates.

On a national basis, single-family home prices increased by 5.6% year-over-year in November – up slightly from 5.5% in the previous month.

cs

Lower rates of unemployment, an improving economy and a prolonged period of low interest rates have contributed to the housing recovery and helped push home prices higher and one can argue that housing has now fully recovered from the boom-bust cycle that began a dozen years ago.

Home prices are climbing particularly fast out West, with the highest year-over-year price increases in Seattle (10.4%), Portland (10.1%) and Denver (8.7%).

Consumer Confidence slipped to 111.8 (my forecast 112.5) in January from a downwardly revised 113.3 (from 113.7) in December. The December reading, it should be noted, marked a 15-year high.

confidence

The key takeaway from the report is that consumer confidence is still at relatively high levels, although consumers’ outlook was reined in a bit following the post-election surge.

U.S. Construction Spending declined 0.2% in December (my forecast +0.2%) following a 0.9% increase in November. The downturn was paced by non-residential spending, which declined 0.7%. Residential spending rose 0.4%.

Total private construction spending was up 0.2%, led by a 0.5% increase in residential spending. Non-residential spending was flat.

Total public construction spending was down 1.7%. Per usual, that was paced by the non-residential sector, which fell 1.7% on the back of construction spending declines for all areas, with the lone exception of public safety (+2.1%).

On a year-over-year basis, total construction spending is up 4.2%, with total private construction spending up 6.3% and total public construction spending down 1.8%.

con-spend

The key takeaway from the report is that private construction spending was up for the third straight month. The value of this report for the market, though, is negligible since it is a dated report, the output of which was already imputed in the fourth quarter GDP report last week.

January Non-Farm Payrolls were impressive with 227,000 jobs added to the economy (I had forecast 170,000).

payrolls

Over the past three months, job gains have averaged 183,000 per month. December payrolls were revised up to 157,000 from 156,000 but November payrolls were revised down to 164,000 from 204,000.

The key takeaway is that this is one of those so-called “Goldilocks” reports since it is strong enough to keep participants thinking good things about the economy, but not strong enough to convince the market to think it means the Fed is now going to be in a hurry to raise the fed funds rate.

The tempered growth in average hourly earnings, which dialed back year-over-year growth to 2.5% from 2.8% in December, is the focal point as it relates to the market’s perspective on the Fed.

The Unemployment Rate rose to 4.8% from the December 4.7% rate.

u-rate

Persons unemployed for 27 weeks or more accounted for 24.4% of the unemployed versus 24.2% in December.  The U6 unemployment rate, which accounts for both unemployed and underemployed workers, increased to 9.4% from 9.2% in December.

The labor force participation rate in January was 62.9% versus 62.7% in December.

What to Watch for Next Week

Consumer Credit rose by $24.5B in November and I think that we will see this number go up by another $19.4B when the December figures are released on Tuesday.

Consumer Sentiment in early February will likely pull back from the final January figure of 98.5. I am looking for 97.9.

The Weekly Economic & Real Estate Forecast – 1/23/17 to 1/27/17

What I Saw Last Week

Inflation – as measured by the Consumer Price Index – matched my forecast with the total rate up by 0.3% month-over-month and the core rate, which excludes food and energy, up by 0.2%.

cpi

On a year-over-year basis, total CPI is up 2.1% on an unadjusted basis. That is the largest 12-month increase since the period ending June 2014.  Core CPI, meanwhile, is up 2.2% year-over-year, which is up slightly from the 2.1% increase registered for the 12-month period ending in November.

The key takeaway from this report is that the consumer inflation rate is steadily rising, which is supporting the Federal Reserve’s tightening bias at this juncture.

The NAHB Housing Market Index figure for January remained on solid ground, even if the index level retreated two points to 67 from a downwardly revised 69 (from 70) in December. I had forecast it to have remained at 70.

hmi

I suggest that builders begin the year optimistic that a new Congress and administration will help create a better business climate for small businesses, particularly as it relates to streamlining and reforming the regulatory process.

The NAHB expects solid 10 percent growth in single-family construction in 2017, adding to the gains of 2016; however, there are concerns going into the year which include rising mortgage interest rates as well as a lack of lots and access to labor.

U.S. Building Permits dipped 0.2% to a seasonally adjusted annual rate of 1.20M units.  I had forecast 1.217M units.

permits

Single-family authorizations in December were at a rate of 817,000, which is 4.7 percent above the revised November figure of 780,000.

An estimated 1,186,900 housing units were authorized by building permits in 2016, a 0.4 percent uptick from the 2015 figure of 1,182,600.

U.S. Housing Starts increased 11.3% to a seasonally adjusted annual rate of 1.226M in December – I had forecast an increase to 1.193M units.

starts

The growth in starts was powered by a 57.3% increase in multi-unit starts. Single-family starts were down 4.0% in December.

Single-family starts were up 5.1% in the Northeast, down 9.9% in the Midwest, down 7.4% in the South, but up 6.0% in the West.

The number of privately-owned housing units under construction increased 1.1% to 1.054M units.

The key takeaway from the report is that residential construction will be computed as a positive input in Q4 GDP forecasts as the fourth quarter average for privately-owned housing units under construction was 1.8% above the third quarter average.

What to Watch for This Week

U.S. Existing Home Sales were measured at an annual rate of 5.61M units in November rand the December figure will likely show a modest pullback to 5.55M units.

U.S. New Home Sales came in at an annual rate of 592,000 units and the December number should show a drop to 589,000.

US GDP in the 4th quarter of 2016 should show that US growth expanded by 2.2% following the increase of 3.5% seen in Q3 of last year.

The final Consumer Sentiment number for January will likely remain essentially unchanged (98.0 vs 98.1).

The Weekly Economic & Real Estate Forecast – 1/16/17 to 1/20/17

What I Saw Last Week

Total Consumer Credit rose by $24.6B in November – well above my forecast for an increase of $18B after increasing an upwardly revised $16.2 billion (from $16.0 billion) in October.

credit

The growth in November was paced by a $13.5 billion increase in non-revolving credit, which rose to $2.76 trillion. Revolving credit increased by $11.0 billion to $992 billion, which was the largest monthly increase since March 2016 and only the third time since November 2007 that revolving credit increased month-to-month by more than $10 billion.

The key takeaway from the report is that consumer credit — both revolving and non-revolving – continues to expand, providing fuel for a potential increase in economic activity.

The Retail Sales report was a bit disappointing relative to expectations with total retail sales up by 0.6% month-over-month (I had forecast +0.7%) while sales, excluding autos, increased 0.2% (I had forecast +0.6%). If you take gasoline sales out of the equation retail sales were flat.

retail-sales

There was clear strength in the motor vehicle (+2.4%), gasoline station (+2.0%), and non-store retailer (+1.3%) sales categories, while there was clear weakness in the electronics and appliance stores (-0.5%), general merchandise stores (-0.5%, miscellaneous store retailer (-1.0%), and food services and drinking places (-0.8%) sales categories.

The key takeaway from the report is that consumers were somewhat guarded with their discretionary spending on goods in December despite some decent wage growth and reports of increased confidence.

Consumer Sentiment in early January came in at 98.1 – slightly lighter than my forecast for 98.5.

sentiment

The takeaway from the report is that there is a real divide between positive and negative concerns among consumers pertaining to the incoming Trump Administration. However; when the outlook from consumers who didn’t share any views on government is considered, the Expectations Index was a strong 90.9. The latter, according to the report, supports a real consumption growth rate of 2.7% in 2017.

What to Watch for This Week

Inflation – as measured by the Consumer Price Index – has been trending higher and I anticipate that this will continue.  Expect to see the overall rate having risen by 0.3% in December and the core rate come in 0.2% higher.

The NAHB Housing Market Index jumped to 70 in December and I believe that the January number will remain at that level.

U.S. Building Permits dropped by 4.7% in November to an annual rate of 1.201M. Look for a jump up when the December numbers are released later this week.  Any figure below 1.217M will be a disappointment.

U.S. Housing Starts dropped by 18.7% to an annual rate of 1.090M units in November.  I am looking for an increase to 1.193M units in the December report.

The Weekly Economic & Real Estate Forecast – 1/02/17 to 1/13/17

What I Saw Last Week

Total U. S. Construction Spending increased 0.9% in November (I had forecast +0.5%) on top of an upwardly revised 0.6% increase (from +0.5%) in October. On a year-over-year basis, total construction spending increased at a seasonally adjusted annual rate of 4.1%.

The uptick in November was led by increases for both private construction spending (+1.0%) and public construction spending (+0.8%).

con-spend

Spending on the private side was balanced nearly equally between the residential sector (+1.0%) and the non-residential sector (+0.9%). On a year-over-year basis, private construction spending is up 4.6%.  On the public side, non-residential spending (+0.8%), which accounts for nearly all of public construction spending, drove things per usual. Highway and street spending increased at a 1.1% seasonally adjusted annual rate while education construction increased at a 2.1% seasonally adjusted annual rate. On a year-over-year basis, public construction spending is up 2.6%.

The key takeaway from the report is that construction spending is increasing and will serve as a positive input for Q4 GDP forecasts.

Non-Farm Payrolls increased by 156,000 in December – I had forecast an increase of 185,000 new jobs.  While disappointing relative to my forecast, it was basically in-line when taking into account the upward revision for November. November non-farm payrolls revised to 204,000 from 178,000. October non-farm payrolls revised to 135,000 from 142,000.

Private sector payrolls increased by 144,000 with November numbers upwardly revised to 198,000 from 156,000 and October private sector payrolls were revised to 146,000 from 135,000.

payrolls

The key takeaway from the December employment report is that job growth is slowing while wages are rising, which are offshoots of a labor market running near full employment.

There was a notable pickup in average hourly earnings growth year-over-year, which is at its highest rate (+2.9%) since May 2009. That should bode well for consumer spending, yet it will continue to feed burgeoning expectations about a pickup in inflation in 2017 and perhaps a pickup in the Fed’s rate-hike actions.

More time and more data will need to be seen to get a better feel for that rate-hike frequency factor, yet the December employment report certainly didn’t do anything to diminish the market’s current understanding that the Fed is projecting three rate hikes for 2017.

The national Unemployment Rate  matched my forecast and rose from 4.6% to 4.7%.

Persons unemployed for 27 weeks or more accounted for 24.2% of the unemployed versus 24.8% in November while the U-6 unemployment rate, which accounts for both unemployed and underemployed workers, dropped to 9.2% from 9.3% in November.

u-rate

What to Watch for This Week

Consumer Credit rose by $16B in October and I anticipate that the November figure will be a little bit more robust with an increase of $18B.

U.S. Retail Sales rose by a marginal 0.1% in November and I am looking for a far better number in the December report with an increase of 0.7%.  Core sales should have risen by 0.6%.

Consumer Sentiment in early January will continue to set post-recession records and come in at 98.5 from the final December number of 98.2.

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