Home Sales Remain Firm, Moderate Economic Growth on Target for 2017: June 19 – 23

Home sales improved during May while forward-looking economic indicators suggest moderate economic growth during the rest of this year. Here are the 5 things we learned from U.S. economic data released during the week ending June 23.

#1Existing home sales crept up during May. The National Association of Realtors reports that sales of previously owned homes grew 1.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.62 million homes. This was 2.7 percent above the year ago annualized sales pace and just below its post-recession sales peak. Sales grew in three of four Census regions during May: Northeast (+6.8 percent), West (+3.4 percent), and South (+2.2 percent). Sales fell 5.9 percent in the Midwest. The 12-month comparables followed the same pattern, with sales growing in the Northeast, South, and West, but falling in the Midwest. There remained a dearth of homes on the market. A mere 4.2 month supply of homes were available for sale at the end of May, with the 1.96 million homes on the market representing 8.4 percent decline from a year earlier. As a result, the median sales price of existing home sales jumped 5.8 percent from a year earlier to $252,800. The press release noted that “[t]he job market in most of the country is healthy and the recent downward trend in mortgage rates continues to keep buyer interest at a robust level.”

#2New home sales also bounced up during May. The Census Bureau estimates the seasonally adjusted annualized sales rate for new homes was at 610,000 units, up 2.9 percent for the month and 8.9 percent from a year earlier. Sales surged in both the West and South by 13.3 percent and 6.2 percent, respectively, but cooled in both the Midwest (-25.7 percent) and Northeast (-10.8 percent). Homebuilders had 268,000 new homes available for sale at the end of May, up 1.5 percent from the previous month and 11.2 percent from a year earlier. This translated into a still tight 5.3 month supply of new homes. The median sales price for new homes jumped 16.8 percent over the past year, although some of the “increase” reflects larger (and therefore more expensive) homes sold.

#3Leading economic indicators point to 2017 economic growth of two percent or more. The Conference Board’s Leading Economic Index grew 0.3 percent during May to a seasonally adjusted reading of 127.0 (2010 = 100). This was up 3.5 percent from a year earlier. Eight of the leading index’s components made positive contributions to the measure during May, led by the interest rate spread, new orders for manufactured goods, and consumers’ expectations for business conditions. The coincident economic index edged up 1/10th of a point to 115.3 (+2.2 percent vs. May 2016) as three of four index components making positive contributions (personal income net of transfer payments, nonfarm payrolls, and manufacturing/trade sales). The lagging economic index also added 1/10th of a point to 124.2 (+2.1 percent vs. May 2016) with only three of seven index components making a positive contribution during the month. The press release noted that the leading indicators suggest “the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2 percent growth for the remainder of the year.”

#4Layoff activity remained light during mid-June. Per the Department of Labor, there were a seasonally adjusted 241,000 first-time claims made for unemployment insurance benefits during the week ending June 17, up 3,000 for the week but 21,000 below the number of claims from the same week a year earlier. The jobless claims count has been below 300,000 for 120 consecutive weeks, a feat not seen since 1970(!). The four-week moving average of first-time claims of 244,750 was 8.3 percent below that of a year earlier. 1.817 million people were receiving some form of unemployment insurance benefits during the week ending June 3, 10.2 percent below the count of a year ago.

#5Americans’ household debt service remained relatively low in early 2017. The Federal Reserve indicates that financial obligations represent 15.47 percent of households’ disposable personal income during the first quarter of 2017. The financial obligations ratio was down one basis point from the previous quarter but up a basis point from a year earlier. This ratio has been consistently below 16 percent since 2011 (contrasting with ten years ago when the percentage was consistently nearly 18 percent) and has stayed near 30-year lows. The debt service ratio held steady at 10.04 during Q1 and was up two basis points from a year earlier. By comparison, this measure was above 13 percent ten years ago. Nondebt financial obligations (e.g., rent, leases) represented 5.43 percent of disposable income, down 1-basis point from the previous quarter but keeping the measure near its highest levels in 30 years.Financial Obligations Ratio--06232017

Other U.S. economic data released over the past week:
FHFA House Price Index (April 2017, Purchase-only Index, seasonally adjusted): +0.7% vs. March 2017, +6.8% vs. April 2016.

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

Q4 GDP Revised Upward, Consumer Confidence Further Firms. What We Learned During the Week of March 27 – 31

The U.S. economy ended 2016 a bit stronger than previously thought, while consumer sentiment continued to brighten for many Americans during March. Here are the 5 things we learned from U.S. economic data released during the week ending March 31.

#1The “final” revision to Q4 2016 GDP indicates a slightly healthier economy that previously believed. The Bureau of Economic Analysis now places the seasonally adjusted annualized growth rate of the Gross Domestic Product (GDP) at a solid, if not particularly great, +2.1 percent. This was an improvement from the 1.9 percent increase previously reported over the past two months, mainly the result of higher estimates for personal spending and private inventory accumulation. What did not change was that the GDP components that positively contributed to economic growth during the quarter were personal consumption expenditures (adding 240-basis points to GDP growth), the change in private inventories (+101-basis points), residential fixed investment (+35-basis points), nonresidential fixed investment (+11-basis points), and government expenditures (+3-basis points). Holding back GDP growth were a rise in imports (costing 127-basis points in GDP growth) and a decline in exports (costing 55-basis points in GDP growth). Meanwhile, corporate profits inched up 0.5 percent during Q4 to a seasonally adjusted annualized rate of $2.150 trillion (+9.3 percent vs. Q4 2015). We will get the first estimate of Q1 2017 GDP on April 28.

#2“Real” personal spending slipped for a second straight month. The Bureau of Economic Analysis reports that personal consumption expenditures (PCE) adjusted for inflation (using 2009 chained dollars) inched down 0.1 percent during February, leaving the measure of consumer spending 2.6 percent above that of a year earlier. Real spending on goods increased 0.1 percent during the month, with expenditures on durable goods off 0.1 percent and that on nondurables up 0.1 percent. Moderate winter weather lowered demand for utilities, which led to a 0.1 percent decline in spending on services. Over the past year, real spending on goods has grown 4.4 percent while that on services was up 1.8 percent. Without price adjustments, personal spending increased 0.1 percent during the month, funded by a 0.4 percent increase in nominal personal income. Disposable personal income grew 0.3 percent, with the gain shrinking to 0.2 percent after adjustments for inflation. Real disposable income was 2.3 percent above that of February 2016. The saving rate grew by 2/10ths of a percentage point to +5.6 percent. Finally, inflation moves ever slowly closer to the Federal Reserve’s two percent target rate. The PCE deflator, a measure of inflation, grew 0.1 percent during February and was up 2.1 percent from a year earlier. Net of energy and food, the PCE deflator increased 0.2 percent during February with a 12-month comparable of +1.8 percent.GDP-Growth-2013-2016-033117

#3Consumers grew more confident during March. The Conference Board’s Consumer Confidence Index surged 9.5 points during the month to a seasonally adjusted reading of 125.6 (1985 = 100). This was measure’s best reading in more than 16 years. Survey respondents’ views of both current and future business conditions improved significantly from February, with the present conditions index adding 9.7 points to 143.1 and the expectations index rising by 9.9 points to 143.1. A closer glance at the data finds 32.2 percent of respondents characterizing current business conditions as “good” (versus 12.9 percent saying they were “bad”) while 31.7 percent claimed that jobs were “plentiful” (versus 19.5 percent saying they were “hard to get”). The press release noted that “consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.”

While the University of Michigan’s Index of Consumer Sentiment added 6/10ths of a point to a seasonally adjusted reading of 96.9 (1966Q1 = 100), the press release noted a sharp partisan divide in views of economic conditions. “Democrats expect an imminent recession, higher unemployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects and lower inflation.” Only a quarter of Democrats expect their personal finances will improve over the next five years, compared to 83 percent of Republicans who are anticipating the same. Two-thirds of Democrats expect “renewed economy-wide downturns” while only 13 percent of Republicans fear of the same. During the month, the current conditions index added 1.7 points to a reading of 113.2 (+7.2 percent versus March 2016) while the expectations index held steady at 86.5 (+6.1 percent versus March 2016).

#4Pending home sales sharply increased in February. The National Association of Realtors’ Pending Home Sales Index jumped 5.5 percent during the month to a reading of 112.3 (2001 = 100). This was up 2.6 percent from a year earlier and the second-highest reading since 2006 (the highest reading having occurred last April). The index, which measures the number of contracts signed to purchase a previously owned home, grew during the month in all four Census regions: Midwest (+11.4 percent), South (+4.3 percent), Northeast (+3.4 percent), and West (+3.1 percent). The press release links the rise in the index to “[t]he stock market’s continued rise and steady hiring in most markets,” along with moderate winter weather bringing homebuyers into the market.

#5Agricultural prices rose in February. The U.S. Department of Agriculture reports that its prices received by farmers index increased 6.1 percent during the month to a reading of 91.7 (2011 = 100). This was 0.9 percent below the February 2016 reading. Crop prices jumped 10.0 percent during the month, led by significant prices increases for vegetables/melons, fruit/tree nuts, and grains/oilseed. The measure has risen 3.5 percent over the past year. Prices for livestock production slipped 0.5 percent during February and was 3.2 percent below their year ago readings. Prices fell for poultry/eggs and dairy but increased for meat animals.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 25, 2017, First-Time Claims, seasonally adjusted): 258,000 (-3,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 254,250 (-5.1% vs. the same week a year earlier).

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

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.