FOMC Holds Fed Funds Rate at 2.25 to 2.50 percent

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • FOMC leaves target Fed Fund rate unchanged at 2.25-2,50 percent

Trend:

  • The target Fed Funds rate was set at the current level last December;
  • The rate was set at 1.50 – toe 1.75 percent in March 2018.
  • After holding rates at near zero from December 2008 through December 15, the FOMC has raised the target rate nine times.

Source: Federal Open Market Committee

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The Federal Open Market Committee made no change in interest rates Wednesday at the conclusion of its two-day meeting. The target for the rate banks charge each other for overnight borrowing remained at 2.25 – 2.5 percent.

All 10 members of the FOMC voted to maintain the benchmark rate at the level it was set last December.

The FOMC action means no change in the prime interest rate which is sued as the basis for home equity lines of credit and auto loans.

At the same time, a majority of officials signaled they might not raise the rate at all this year.

The central bank also said in May it would slow the pace of runoff of its $4 trillion asset portfolio and end the runoff of its Treasury holdings at the end of September, exactly two years after it began unwinding its crisis-era stimulus programs.

In rate projections released after the meeting, 11 of 17 officials said they didn’t think the Fed would need to raise rates at all this year, compared with just two in December. The remaining six officials projected between one and two increases would be needed.

“Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong, but that growth of economic activity has slowed from its solid rate in the fourth quarter,” the Committee said in its post-meeting statement announcing the decision.

The FOMC often acts to increase rates when it believes the economy may be overheating. Thus, the decision to freeze the fed funds rate could be seen as a lack of confidence the economy can maintain its current growth pace.

Indeed, the Bureau of Economic Analysis reported the nation’s Gross Domestic Product grew at an annualized rate of 2.6 percent in the fourth quarter, down from 3.4 percent in the third and 4.2 percent in the second.

The weaker fourth quarter growth was doe largely to a drop in capital investment activity and a slightly higher trade deficit.

In reaching its decision, the Committee all but dismissed February’s weak employment situation report which showed the economy added 20,000 new payroll jobs, down sharply from the 245,000 new jobs in each of the three previous months.

“Payroll employment was little changed in February,” the FOMC said, “but job gains have been solid, on average, in recent months, and the unemployment rate has remained low.”

The Committee though acknowledged the possibility of a slowdown noting, “recent indicators point to slower growth of household spending and business fixed investment in the first quarter.”

You can hear Mark Lieberman every Friday at 6:20 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

Builder Confidence Steady in March

By Mark Lieberman

Managing Director and Senior Economist

Data Highlights:

  • Housing Market Index REMAINED at 62 (out of 100) in March, unchanged from February;
  • Two of the three index component measures ROSE; only the measure of buyer traffic declined, dropping four points to a reading of 44;
  • By region, builder confidence FELL in the Midwest but improved in the three other Census Regions;

Trends:

  • Forecast for home sales six months out continued to exceed the forecast for sales in the next month
  • After slipping at the end of 2018. The overall confidence index is now at its highest level since October;
  • The index has been positive (i.e. over 50) for 57 straight months

Data Source: National Association of Home Builders

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In January, according to the latest data from the Census Bureau and Department of Housing and Urban Development (HUD), the pace of contracts for sale for new single-family homes fell for the first time in four months – a decline of 45,000 or 6.9 percent. But that report – arriving about am month late due to the partial government shutdown – failed to dampen builder confidence for March.

But the report on sales activity for February – due to be reported March 29 – could, if equally disappointing, could.

Until then, builders continue to operate as if new-home sales, if not robust, remain strong despite evidence to the contrary.

As we saw in a different Census Bureau report last week – on retail sales – the home sales data do not exist in a vacuum. With weaker new homes sales, retail activity at furniture and at electronics-appliance stores – was off in February.

The National Association of Relators’ Housing Affordability Index — which attempts to measure the degree to which a typical family can afford the monthly mortgage payments on a typical home – has been increasing steadily from 144.13 last November to 155.8 in January. At that level a family earning the median family income has 155% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home.

That index is based on the median price of an existing single family home; the median price of a new single family home in January was almost 30 percent higher however.

The average interest rate on a 30-year fixed rate mortgage dropped to 4,46 percent in January from 4.64 percent in December, according to Freddie Mac.

 Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:20 am Eastern Time. Follow Mark Lieberman on Twitter at @ foxeconomics.

1st-time Unemployment Insurance Claims Edge Up Again

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • 229,000 1st time claims for unemployment insurance for the week ended March 9, an INCREASE of 6.000 from the prior week’s unrevised report (223,000);
  • The four-week moving average of first-time claims FELL 2,500 to 223,750;
  • Four week moving average represented 0.143 percent of employment, DOWN from 0.144 the previous week;
  • The number of continued claims – individuals who had been collecting unemployment insurance — reported on a one-week lag, was 1,776,000 for the week ended March 2, UP 18,000 from the previous week’s upwardly REVISED 1,758,000 (from 1,755,000)
  • The four-week moving average of continued claims DROPPED 1,000 to 1,766,250.

Trends:

  • Four-week moving average of initial claims fell for the third straight week; the “three-peat” was the first since December;
  • The four-week moving average of continued claims fell for the first time since last October.

Data Source: Department of Labor

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On the heels of a disappointing Employment Situation release, first time claims for unemployment insurance rose again during the week ended March 9 hinting the labor market malaise may continue.

The numbers are, to be sure, relative and in historic term claims for unemployment benefits remain low. Indeed, even though continued claims for unemployment insurance – often an indicator of jobs – are up 2.6 percent from the beginning of the year, they’re down 6.1 percent from a year ago and down more than 76 percent from the Great Recession high.

Still, after years of a strong economy any time a key indicator moves the wrong way, it’s important to take notice.

The weekly claims report is one of the important leading indicators of economic woes in part because of its timeliness and frequency. But at the same time, it’s because of its frequency the report is often misread because its subject to all sorts of external influences – weather being chief among them.

That said, the geographic analysis of the claims numbers, as reported by the Labor Department, offer no clear geographic pattern.

The largest increases in initial claims for the week ending March 2 for example, were in New York (+16,253), California (+6,636), Pennsylvania (+1,774), Oregon (+1,576), and Georgia (+661), while the largest decreases were in Massachusetts (-4,196), Kentucky (-3,117), Washington (-1,185), Rhode Island (-1,100), and Michigan (-756).

The sector analysis of the claims too is equally muddy. In New York, for example, the Labor Department cited layoffs in the transportation and warehousing, accommodation and food service, and educational service industries.  California saw more service sector layoffs and Pennsylvania layoffs in the transportation and warehousing, accommodation and food service, manufacturing, and health care and social assistance industries

You can hear Mark Lieberman tomorrow and every Friday at 6:20 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124.

New Home Sales Drop Further in January

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Pace of contracts for new home sales FELL 6.9 percent in January to 607,000;
  • The pace of sales for December, originally reported as 621,000, was revised upward to 652,000; November sales rate was also revised upward from 599,000 to 628,000
  • The unsold inventory of new homes DECREASED 5,000 in January to 336,000;
  • The months’ supply of new homes for sale ROSE to 6.6 in January from 6.3 in December;
  • Median price of a new home FELL $1,900, 0.6 percent, from December to $317,200; year-year the median price was off $12,400 or 3.8 percent;

Trends:

  • The drop in inventory of new homes for sale was the first since March 2018;
  • New home sales in January were DOWN 4.1 percent from January 2018, the fourth year-year decline in the last five months;
  • The year-year drop in the median price of a new home was third consecutive monthly decline;

Data Source: Census Bureau and Department of Housing and Urban Development

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There was an underlying message in the government’s monthly report on new home sales (contracts) which actually had only a tangential relationship to the subject matter: the pause in economic data due to the partial government shutdown could result in bad business decisions.

The report from the Census Bureau and HUD on January new home sales was originally scheduled for release at the end of February but without hard information on new home sales, home builders were driving blind when it came to decisions on what to build when and how many workers to hire.

Indeed, even as new home sales were falling, according to the Census Bureau which was affected by the shutdown, the number of construction job openings as reported by the Bureau of Labor Statistics — which was not shuttered – rose.

The slowdown in home sales and construction activity has belatedly shown up in other government data reports including the Bureau of Economic Analysis Gross Domestic Product release and the Census/HUD report on housing permits and starts, but those data dumps too came late. The GDP report reflected slower residential investment as total economic growth slipped.

The government report stood in contrast to the parallel data reported by the National Association of Realtors. NAR’s pending home sales report for January – tracking contracts and released at the end of February – noted a 4.6 percent increase in contracts for sale of existing single-family homes. The PHSI improvement was only the second in the last seven months.

According to the most recent government data on home building, housing permits increased 1.5 percent in January but the increase was concentrated in permits for multi-family, not single-family homes. Housing starts surged in January primarily due to single-family construction but that was before the home sales numbers were published. The weak new home sales data could reverse January’s construction trend.

Hear Mark Lieberman on P.O.T.U.S. (Sirius-XM 124) Friday at 6:20 am Eastern Time. You can follow Mark Lieberman on Twitter at @foxeconomics.

Retail Sales Showed Slight Gain in January

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • January retail sales ROSE a scant 0.2 percent or $1.06 billion after falling $8.2 billion or 1.6 percent in December;
  • The revised December drop was more than the $6.4 billion, 1.2 percent decline originally by the Commerce Department;
  • Sales at furniture and appliance stores DECLINED, consistent with slower home sales;
  • Gasoline station sales were DOWN as the price of gasoline dropped;
  • Sales at non-store retailers (online) ROSE 2.6 percent after falling 5.0 percent in December; sales at non-store retailers remained at 10.9 percent of total sales;
  • The increase in retail activity came in the same month in which the Consumer Price Index was unchanged month-month;
  • Retail activity was up 2.3 percent year-year while CPI rose 1.6 percent.

Trends:

  • Year-year total sales ROSE 2.3 percent in January, compared with a 1.8 percent year-year growth in December; CPI inflation January to January was 1.6 percent;
  • BLS also reported the number of retail jobs rose 13,700 in January, an increase of 0.9 percent from December;

Data source: Census Bureau

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Retail sales got back on trac in January after a dismal December which saw sales plunge. The data for January though show retailers are still struggling as other aspects of the economy appear to be contracting.

The most obvious is the impact slower home sales is having on furniture and appliance stores. Not only did sales at those stores fall in January, but in the last year, sales at furniture stores are off 2.7 percent and sales at electronics and appliance stores are down 3.3 percent.

Meanwhile, as the per gallon of gasoline fell 12.1¢ in January (5.1 percent), sales at gasoline stations fell 2.0 percent suggesting motorists are taking advantage of the lower prices by increasing their driving.

That retail activity increased more rapidly than Consumer Price Index prices reflects the improvement in earnings as reported by the Bureau of Labor Statistics in its Employment Situation release. Even as sales fell at furniture stores, the number of retail jobs at such stores rose from January 2018 to January 2019. Employment at electronics and appliance stores however declined in the same period as sale dropped.

Hear Mark Lieberman tomorrow (and every Friday) on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124, at 6:20 am Eastern Time. You can follow him on Twitter at @foxeconomics.  

Economy Adds Disappointing 20K jobs in February; Unemployment Rate Dips

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Number of payroll jobs INCREASED 20,000 in February
  • Unemployment rate in February DIPPED to 3.8 percent from 4.0 percent;
  • Average weekly earnings INCREASED $1.02 in February to $950.48, a 3.1 percent year-year gain;
  • Average hourly earnings GREW 11¢, in February a 3.4 percent annual increase
  • Private sector jobs INCREASED 25,000; Government payrolls FELL 5,000;
  • Prior month job totals were revised up: the number of new jobs in January was revised from 304,000 to 311,000, up 7,000, the number of new jobs in December was revised up by 5,000 to a gain of 227,000;
  • The number of persons unemployed FELL 300,000 to 6.235 million while the number of persons employed INCREASED 255,000; The Labor Force therefore DECLINED 45,000;
  • The number of persons not in the labor force INCREASED 198,000;
  • Labor force participation rate REMAINED at 63.2 percent, up from 63.0 percent a year ago;
  • By sector number of construction jobs FELL 31,000; the number of health-and-education jobs was UP 4,000 compared with the average growth of 45,000 in the previous three months.

Trends:

  • Payroll jobs were up for the 101st straight month
  • Hourly earnings growth has now exceeded 3.0 percent year-year for three straight months, Weekly earnings grew more than 3.0 percent year-year for the fifth straight month;
  • Month-month payroll job growth was the second weakest of the Trump Administration: jobs grew by 18,000 in September 2017 following devastating hurricanes.

Data Source Bureau of Labor Statistics

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Beyond the obvious – a disappointing job growth of just 20,000 in February – the Employment Situation included several warning signs for the economy:

  • While earnings growth appeared strong, they were buoyed artificially by weakness in the two lowest paying sectors, retail and leisure-and-hospitality;
  • Early-stage unemployment – fewer than five weeks – represented about 35 percent of all unemployment, up from an average of 34.3 percent in 2018.  The percentage had dropped as low as 28.9 percent two years ago. The increase suggests employment instability.
  • The number of temp and part time jobs grew in February by almost 132,000, the largest month-month increase in four months again suggesting employer reluctance to make permanent full-time staff additions.
  • The drop in the number of construction jobs bolstered concerns about the housing sector: of the 31,000 fewer jobs, 11,000 were in the residential construction sector;
  • The Employment-Population (E-POP) ratio was flat in February at 60.7 and has yet to recover to pre-Recession levels (62.7). E-POP is the broadest measure of employment as a percentage of the working age population and does not factor in those not available for work (i.e. students).
  • The number of credit intermediation jobs – loan underwriters and processors — has fallen 11,000 in the last year as home sales contract.

Hear Mark Lieberman every Friday morning at 6:20 am on The Morning Briefing on POTUS on Sirius-XM 124. You can follow Mark Lieberman on Twitter at @foxeconomics.

Homeownership Rate Inches Up in 4Q As Seniors Can’t Sell

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Homeownership rate improved in 4Q 2018 to 64.8 percent from 64.4 percent in 3Q;
  • Homeownership rate for older Americans – 65-plus – rose to 78.8 percent from 78.6 percent in 3Q;
  • 1.2 million MORE households owned homes in 4Q 2018 than in 3Q as fewer homes were listed for sale;

Trends

  • At 64.8 percent, the homeownership rate is at its highest level since 1Q 2014;
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With existing home sales faltering, according to the National Association of Realtors (NAR), the nation’s homeownership rate ticked up to the highest level in almost five as homeowners found themselves unable to sell.

While the number of housing units increased to accommodate a growing number of households, 

As the homeownership rate among seniors rose and for those in the 35-44 age cohort improved but the rate for those under 35 dropped. The 25-34 age cohort is considered prime homebuying years but that age bracket is also most likely to be saddled with a heavy student loan burden affecting the ability to purchase a home.

Senior and other older homeowners (the ownership rate for those 55-64 was 75.6 percent, up from 75.5 percent in the third quarter) may find themselves trapped as the median price of an existing home has slipped. The median price fell in six of the last seven months and is down almost 10 percent since June.

The home sales market was rocked with the tax changes enacted in December 2017 which capped the deductibility of mortgage interest as well as local real estate taxes, removing some of the tax advantages of homeownership.

Hear Mark Lieberman every Friday on the Morning Briefing on P.O.T.U.S. radio, Sirius-XM 124, at 6:20 am Eastern Time. Follow Mark Lieberman on Twitter at @foxeconomics.

1st-time Unemployment Insurance Claims Increase

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • There were 225,000 1st time claims for unemployment insurance for the week ended February 23, an INCREASE of 8.000 from the prior week’s upwardly revised report (216,000 to 217,000);
  • The four-week moving average of first-time claims FELL 7,000 to 229,000;
  • Four week moving average represented 0.146 percent of employment, DOWN from 0.151 the previous week;
  • The number of continued claims – individuals who had been collecting unemployment insurance — reported on a one-week lag, was 1,805,000 for the week ended February 16, UP 79,000 from the previous week’s upwardly REVISED 1,726,000 (from 1,725,000)
  • The four-week moving average of continued claims INCREASED 6,750 to 1,761,750.

Trends:

  • Four-week moving average of continued claims is at highest level since last May 18 1,775,000);
  • The week-week increase in continued claims was the largest since the week ended November 28, 2015 (85,000);
  • The four-week moving average of continued claims has increased for 16 straight weeks.

Data Source: Department of Labor

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First-time claims for unemployment insurance crept back up last week, adding to signals the long economic recovery may be slowing.

While the increase in filings was slight, it also suggests more right-sizing among businesses which could ease pressures on employers to increase wages. Any such slowdown would have a quick ripple effect through the economy, endangering already shaky retail sales and the in-the-doldrums housing market.

The Labor Department report also offered some hints to next week’s Employment Situation report for from the Bureau of Labor Statistics.

From mid-January to mid-February, the measurement points for the BLS’ monthly report, both initial claims and the four-week moving average of initial claims increased suggesting an increase in unemployment in the household survey.

The number and moving average of continued claims, a surrogate for hiring, also both rose suggesting a slowdown in job creation which has averaged about 203,000 per month for each month of the Trump Administration, about 10,000 per month under the average for the last 24 months of the Obama Administration.

You can hear Mark Lieberman tomorrow and every Friday at 6:20 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124.

December Housing Starts Tumble to 27-Month Low

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Home building activity, measured by housing permits and starts DETERIORATED in December, as housing starts fell and single-family permit activity collapsed;
  • The seasonally adjusted annual rate of housing starts FELL 11.2 percent with single-family starts DOWN 6.7 percent and multi-family starts DROPPING 20.4 percent; Total starts fell to a Seasonally Adjusted Annualized Rate (SAAR) of 1.078 million, the weakest since September 2016.
  • Permit activity ROSE a scant 0.3 percent, though permits for single-family homes SKIDDED 2.2 percentage; multi-family permits ROSE 4.9 percent;
  • The rate of housing completions FELL 8.4 percent, though single-family completions FELL 5.4 percent from October while multi-family completions ROSE 17.2 percent.

Trends:

  • Single-family permits represented 62.5 percent of all permit activity, the smallest share since August 2017 (61.8 percent);
  • The drop in housing completions was the largest since March 2015 (12.1 percent);
  • Single-family starts fell to the lowest level since May 2017.

Data Source: Census Bureau and Department of Housing and Urban Development

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Even as builder confidence (the National Association of Home Builders Housing Market Index) improves, the data behind it continued to struggle in the latest numbers from the Census Bureau and Department of Housing and Urban Development, albeit for December, suggest.

To say that housing is sluggish based on construction reports and home sales information, would be an understatement. Those numbers though don’t explain the record number of construction job openings as tallied by the Bureau of Labor Statistics.

Clearly there’s more going on here.

We may get a better sense of who is in and out of the housing market in Thursday’s quarterly report on homeownership which, among other things, details homeownership by age. The contention has been the 25-34 year old age cohort is not buying homes at the same pace their parents did. Data Thursday will either bear that out of send analysts in search of a different explanation.

Suffice it to say, the numbers for housing construction (and sales) don’t look good but then again, the numbers are somewhat out of synch. The Census-HUD report on housing permits, starts and completion issued this month should have been for January, not for December. We’re sort of driving trying to see through a mud-splattered windshield as a result of the 35-day partial government shutdown.

It will probably take a month or two for the government numbers to catch up with what is actually happening in the economy, in time for new factors to kick in.

Hear Mark Lieberman every Friday at 6:20 am on POTUS Morning Briefing, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

Case Shiller Home Prices Index Slips for 3rd Straight Month in December

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Case Shiller Core Logic 20-city price index FELL in December for the third consecutive month to its lowest level since last May, down 0.23 percent to 212.96;
  • The national index also DROPPED for the third month in a row shedding 0.14 percent to 205.35, the weakest since July;
  • The 10-city index SLIPPED for the second  straight month, off 0.23 to 226.61, the lowest level since June;
  • While all three indices showed year-year growth in December, the annual increase was less than it had been in November;
  • Indices improved month-month in December in just five of the 20 cities surveyed, down from eight cities which saw month-month price improvement in November’

Trends:

  • The month-month price declines in all three indices were the steepest since November 2014;
  • All three indices remain above their previous peaks in summer 2006.

Data Source: S&P Case Schiller/Core Logic

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The housing sector continued to slump in December as home values dipped again, the third straight month-month decline, according to the Case Shiller Core Logic Home Price Index.

The slip in prices has both good and bad news elements. For would-be buyers to be sure the lower prices may attract more traffic but for empty-nester sellers, the lower values could disrupt retirement plans.

The biggest question mark though is whether the price drops presage a repeat of the 2008 housing/mortgage crisis aka the Great Recession which was fueled by a combination of housing price declines which exacerbated poor lending practices.

In advance of the housing debacle, the Case Shiller home price index (it didn’t include Core Logic then) fell for 34 straight months. And overall values fell by as much as 33 percent.

The value decline in the Case Shiller report came in the same month in which the National Association of Realtors reported the median price of an existing single family home fell 1.0 percent.

What’s likely at work here is the year-old tax act which reduced the tax advantage that came with home ownership by capping both the mortgage interest and local property tax deductions.

Home values fell 1.4 percent month-month in San Francisco followed by Chicago and San Diego where home values dropped 0.7 percent, according to the Case Shiller Core Logic report. Regionally, values fell 0.5 percent in Midwestern cities, 0.4 percent in Western cities and 0.2 percent in cities in the Northeast. Values were flat in cities in the South.

Only Las Vegas and New York (0.2 percent apiece), Atlanta, Miami and Phoenix (0.1 percent each) showed price increases in December.

Hear Mark Lieberman this Friday on P.O.T.U.S. radio’s Morning Briefing, Sirius-XM 124, at 6:20 am Eastern Time. You can follow Mark Lieberman on Twitter at @foxeconomics.