Home Sales Stay Strong, But Tight Supplies Restrain the Market. What We Learned During the Week of March 20 – 24

Both existing and new home sales stayed near their post-recession highs in February while aircraft carried the day for durable goods orders. Here are the 5 things we learned from U.S. economic data released during the week ending March 24.

#1Rising prices and tight supplies weighed a bit on February existing home sales. The National Association of Realtors reports that sales of previously owned homes slowed 3.7 percent during February to a seasonally adjusted annualized rate of 5.48 million units. Even with the month-to-month slowdown in transactions, sales were 5.4 percent above their February 2016 pace and near their post-recession peak. Sales declined during the month in three of four Census regions: Northeast (-13.8 percent), Midwest (-7.0 percent), and West (-3.1 percent). Sales edged up 1.3 percent in the South during February. All four Census regions enjoyed positive 12-month comparables, with sales up 9.6 percent in the West, 5.9 percent in the South, 2.6 percent in the Midwest, and 1.5 percent in the Northeast. While inventories of unsold homes grew 4.2 percent to 1.75 million units, this was not only 6.2 percent below February 2016 inventories but also represented a ludicrously tight 3.8-month supply. Thus, it is not a surprise that the median sales price of $228,400 was up 7.7 percent from the same time a year ago. NAR’s press release stressed that that foot traffic of prospective buyers was high, but warned that a tight supply of affordable homes was “pushing up price growth and pressuring the budgets of prospective buyers.”

#2Meanwhile, new home sales heat up to their fastest pace since last summer. The Census Bureau estimates new home sales grew 6.1 percent during February to a seasonally adjusted annualized rate of 592,000 units. This was 12.8 percent above February 2016 new home sales and represented the best month for new home sales since last July. Sales grew during the month in three of four Census regions: Midwest (+30.9 percent), West (+7.5 percent), and South (+3.6 percent). There were 266,000 new homes available for sale at the end of February, up 1.5 percent from January and 9.9 percent from February 2016. This represented a still tight 5.4-month supply.Tight-Home-Supplies-032417

#3Durable goods orders jumped in February, but core business investment did not. Per the Census Bureau, new durable goods orders increased 1.7 percent during the month to a seasonally adjusted $235.4 billion. Durable goods orders during the first two months of 2017 totaled $430.5 billion, 1.6 percent above that for the same two months a year earlier. The headline number for February wwss pulled up by a 47.6 percent gain in orders for civilian aircraft. Aircraft orders tend to move sharply up and down each month…in fact, defense aircraft orders fell 12.8 percent during February. Overall transportation goods orders increased 4.3 percent during the month (motor vehicles & parts: -0.8%). Net of transportation goods, durable goods orders rose 0.4 percent during the month with orders during the first two months of 2017, 2.7 percent above that of the first two months of 2016. Orders increased in February for primary metals (+2.3 percent), electrical equipment/appliances (+2.2 percent), computers (+1.6 percent), and machinery (+0.1 percent). Falling during the month were orders for communications equipment (-3.8 percent) and fabricated metal products (-0.4 percent). Also declining were new orders for nondefense, non-aircraft capital goods (a proxy for business investment), slipping 0.1 percent during February. Orders for these goods during the first two months of 2017 were 1.3 percent above that for the first two months of 2016.

#4At least according to one measure, economic activity had improved to its fastest rate in more than two years. The Chicago Fed National Activity Index (CFNAI) jumped 36-basis points during February to a reading of +0.34. The measure is an average of 85 economic indicators, 55 of which had made a positive contribution to the CFNAI during February. All four broad categories of indicators showed improvement from their January readings, led by employment-related indicators (gaining 15-basis points to a contribution of +0.21). Also improving during the month were indicators related to sales/orders/inventories (up nine-basis points to +0.08), personal consumption/housing (up eight-basis points to -0.03), and production-related indicators (up five-basis points to +0.09). The CFNAI’s three-month moving average hit its highest reading since December 2014 with an 18-basis point gain to +0.25. A moving average for the moving average above a reading of 0.00 is indicative of economic growth greater than its historical average.

#5February’s gains in payrolls occurred largely in 11 states. The Bureau of Labor Statistics reports that 11 states enjoyed “statistically significant” nonfarm payroll increases during February, led by Illinois (+25,600), Ohio (+15,200), and New Jersey (+12,600). Payrolls essentially held the same in the other 39 states and the District of Columbia. Versus a year earlier, payrolls were up 31 states (led by California, Florida, and Texas), down in two states (Wyoming and Alaska), and held steady in 17 states and in the District of Columbia.  Meanwhile, the unemployment rate fell in ten states during February, with the largest month-to-month declines in West Virginia (down 4/10ths of a point to 5.2 percent), Mississippi (down 3/10ths of a point to 5.2 percent), Oregon (down 3/10ths of a point to 4.0 percent), and Maine (down 3/10ths of a point to 3.2 percent). The only state with a statistically significant increase in its unemployment rate during the month was Massachusetts (up 2/10ths of a point to 3.4 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 18, 2017, First-Time Claims, seasonally adjusted): 258,000 (+15,000 vs. previous week; -8,000 vs. the same week a year earlier). 4-week moving average: 240,000 (-8.1% vs. the same week a year earlier).
FHFA House Price Index (January 2017, Purchase-Only Index, seasonally adjusted): Unchanged vs. December 2016, +5.7% vs. January 2016.

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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