Housing Starts Rebound in June, Leading Economic Indicators Gain: July 17 – 21

Housing construction rebounded in June while leading economic indicators point towards accelerated economic activity during the latter half of this year. Here are the five things we learned from U.S. economic data released during the week ending July 21.

#1Housing construction jumped in June. Per the Census Bureau, housing starts were at a seasonally adjusted annualized rate (SAAR) of 1.215 million units, up 8.3 percent from May, 2.1 percent from a year earlier and its highest point since February. This had followed three consecutive monthly declines in starts. The annualized rate of single-family home starts grew 6.3 percent during the month to 849,000 units (+10.3 percent) while that for multifamily units surged 15.4 percent to 359,000 (off 10.7 percent from the year ago pace). Looking towards the future, the number of issued building permits jumped 7.4 percent during the month to 1.168 million permits (5.1 percent above the June 2016 rate). Housing completions increased 5.2 percent during June to an annualized rate of 1.144 million units. This was 8.1 percent ahead of the completions rate of a year earlier.Housing Starts-2006-2017-072117

#2Homebuilders were (slightly) less confident in July. The Housing Market Index (HMI) from the National Association of Home Builders shed two points to a seasonally adjusted reading of 64. While this was the HMI’s lowest mark since last November, it was still up six points from a year earlier and the 37th straight month in the measure was above a reading of 50, indicating more builders described housing conditions as “good” rather than “poor.” The HMI fell in two of four Census regions—South (down five points to 68) and Midwest (down four points to 64) but gained in the West (up three points to 74) and the Northeast (up two points to 48). Shedding two points were indices for both current and expected sales (to 70 and 73, respectively) while the measure of prospective buyers traffic slipped a point to 48. The press release described overall confidence as “solid,” but noted that homebuilders were “growing increasingly concerned over rising material prices, particularly lumber” that was “hurting housing affordability even as consumer interest in the new-home market remains strong.”

#3Forward looking economic indicators suggests greater economic growth for the rest of this year. The Conference Board’s Leading Economic Index (LEI) jumped by 8/10ths of a point during June to a seasonally adjusted 127.8 (2010=100). This represented nearly a four percent increase over the past year. Eight of the LEI’s ten component made a positive contribution to the index, led by housing building permits, manufacturing new orders, and the interest rate spread. Both the coincident index and the lagging index added 2/10ths of a point to 115.5 and 124.4, respectively. All four components of the coincident index made positive contributions, including nonfarm payrolls and industrial production. Four of seven components to the lagging index made positive contributions, led by the average prime rate charged by banks. The press release said the Conference Board expects “continued growth in the U.S. economy and perhaps even a moderate improvement in GDP growth in the second half of the year.”

#4Employers added workers in 14 states during June. Detailed state-level employment data from June released by the Bureau of Labor Statistics finds nonfarm payrolls grew by a statistically significant amount in 14 states but were “essentially” unchanged in the other 36 states and the District of Columbia. States with the largest payroll gains during June were Texas (+40,200), Georgia (+27,400), New York (+26,000), and Maryland (+13,300). Thirty-nine states enjoyed significant employment gains over the past year but held steady in the other 11 states and in the District of Columbia. The states with the largest year-to-year percentage gains in nonfarm payrolls were Nevada (+3.8 percent), Utah (+3.0 percent), and Florida (+2.9 percent).

#5Bankruptcy filings continue to decline. The Administrative Office of the U.S. Courts reports that there were 796,037 bankruptcy filings during the 12 month period through June 30, 2017. This was off 2.8 percent from the same 12-month period a year earlier and down 30.0 percent from the 12-month count of four years earlier. There were 23,443 business bankruptcy filings during the 12-month period ending June 30, 2017 (down 7.1 percent from a year ago) and 772,594 non-business filings (down 2.7 percent from a year earlier). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 15, 2017, First-Time Claims, seasonally adjusted): 233,000 (-15,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 2435,750 (-6.1% vs. the same week a year earlier).
Import Prices (June 2017, not seasonally adjusted):  -0.2% vs. May 2017, +1.5% vs. June 2016. Nonfuel imports: +0.1% vs. May 2017, +1.0% vs. June 2016.
Export Prices (June 2017, not seasonally adjusted):  -0.2% vs. May 2017, +0.6% vs. June 2016. Nonagricultural exports: unchanged vs. May 2017, +1.1% vs. June 2016.
Treasury International Capital Flows (May 2017, Net Foreigner Purchases of Domestic Securities, not seasonally adjusted): +$95.5 billion (vs. April 2017: +$3.8 billion, vs. May 2016: +$16.3 billion).

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

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.

Q1 GDP Growth Revised From Weak to Tepid: May 22 – 26

The U.S. economy expanded at a tepid pace in early 2017 while the housing market paused in April. Here are the 5 things we learned from U.S. economic data released during the week ending May 26.

#1Even with an upward revision, the U.S. economy expanded at a slow pace during the opening months of 2017. The Bureau of Economic Analysis revised its estimate of first-quarter growth in the Gross Domestic Product (GDP) from a seasonally adjusted annualized growth rate of 0.7 percent to a gain of 1.2 percent. The weak Q1 GDP gain followed a 2.1 percent annualized increase in economic activity during the final three months of 2016. The Q1 GDP revision was the result of higher than previously believed levels of nonresidential fixed investment, personal spending, and state & local government spending (although pulling down the estimate was a lowered estimate of private inventory accumulation during the quarter). Nevertheless, the updated GDP estimate still presents a similar story of what had been reported a month ago: a sharp slowdown in the growth of personal consumption expenditure resulted in the smallest growth in economic activity in a year. Consumption added 44-basis points to GDP growth during Q1 after having contributed 240-basis points to Q4 2016 growth. Most of Q1’s economic growth instead came from fixed investment, with residential and nonresidential fixed economic responsible for 50-basis points and 134-basis points of economic growth during the quarter, respectively. This report also presented the first glimpse of corporate profits, which were at a seasonally adjusted annualized rate of $2.110 trillion. This was off 1.9 percent from the final three months 2016 but up 3.7 percent from Q1 2016. The BEA will revise its GDP estimate once again on June 29.Q1 GDP Contributors 052817

#2On the bright side, economic activity appears to have sped up during April. The Chicago Fed National Activity Index, a weighted average of 85 economic measures, jumped by 42-basis points during the month to a reading of +0.49. This was the measure’s highest point since November 2014. The surge was largely the result of a 45-basis point improvement in the index components tied to production (to a +0.46 contribution to the CFNAI). Also improving during April were CFNAI components linked to employment, with a five-basis point increase to +0.10. Slipping from their March performance were index components tied to sales/orders/inventories (down seven basis points to a neutral contribution of 0.00) and the personal consumption/housing categories of index components (shedding two basis points to -0.06). In all, 46 of the CFNAI’s 85 components made positive contributions to the index. The CFNAI’s three-month moving average grew by 23-basis points to a reading of +0.23. A reading above 0.00 for the moving average is consistent with an economy that is expanding faster than its historical average.

#3Sales of previously owned homes took a breather during April. Per the National Association of Realtors, existing home sales declined 2.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.57 million units. Sales decreased during April in the South (-5.0 percent), West (-3.3 percent), and Northeast (-2.7 percent), but improved in Midwest (+3.8 percent). Existing home sales were 1.6 percent above their April 2016 pace. There was a 4.2 month supply of homes on the market at the end of April, its highest point since last October. However, the 1.93 million homes available for sale at the end of April was 9.0 percent below that of a year earlier. As a result, the median sales price of $244,800 was 6.0 percent above that of a year earlier. NAR’s press release linked the slowdown in home sales to “new and existing inventory…not keeping up with the fast pace homes are coming off the market.”

#4Sales of new homes sagged during April. The Census Bureau reports that new home sales fell 11.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 569,000 units. This was still 0.5 percent above the year-ago sales rate of new homes. Sales dropped in all four Census regions during the month, led by sharp declines in both the West (-26.3 percent) and Midwest (-13.1 percent). On a year-to-year basis, new home sales had grown in the Midwest (+19.7 percent) and South (+4.1 percent) but had slowed in both the West (-13.7 percent) and Northeast (-5.1 percent). Inventories of unsold new homes expanded 1.5 percent to 268,000 units. This was the equivalent to a 5.7 month supply.

#5Consumer confidence remained strong during May, although one’s political views greatly influenced their outlook. The Index of Consumer Sentiment from the University of Michigan inched up 1/10th of a point during the month to a seasonally adjusted reading of 97.1. The same measure was at 94.7 one year ago and was in line with its six-month average of 97.3. The current conditions index dropped by a full point to 111.7 (May 2016: 109.9) while the expectations index added 7/10ths of a point to 87.7 (May 2016: 84.9). The press release noted that the recent pattern of a sharp partisan divide remained, with survey participants that identify themselves as Republicans indicating great optimism and those that are Democrats being particularly pessimistic. 84 percent of Republicans reported “favorable” news about recent economic developments, compared to a mere 37 percent of Democrats. Conversely, 73 percent of Democrats described “unfavorable” economic news versus only 19 percent of Republicans. The press release also stated that the survey results suggested real personal spending would grow 2.3 percent during 2017.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 20, 2017, First-Time Claims, seasonally adjusted): 234,000 +1,000 vs. previous week; -34,000 vs. the same week a year earlier). 4-week moving average: 235.250 (-14.7% vs. the same week a year earlier).
Durable Goods (April 2017, New Orders, seasonally adjusted):  $231.2 billion (-0.7% vs. March 2017). New orders net of transportation goods: $152.7 billion (-0.4% vs. March 2017).
FOMC minutes
FHFA House Price Index (March 2017, Purchase-Only Index, seasonally adjusted):  +0.6% vs. February 2017, +6.2% vs. March 2016.
Wholesale Inventories (March 2017, Inventories of Merchant Wholesalers, seasonally adjusted): $594.6 billion (+0.2% vs. February 2017, +3.0% vs. March 2016).

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