New Home Sales Improve in February

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Pace of contracts for new home sales ROSE 4.9 percent in February to 667,000;
  • The unsold inventory of new homes DROPPED 2,000 in February to 640,000;
  • The months’ supply of new homes for sale FELL to 6.1 in February from 6.5 in January;
  • Median price of a new home ROSE $11,200, 3.8 percent, from January to $315,300; but year-year the median price was off $11,900 or 3.6 percent;

Trends:

  • The number of contracts for the sale of new homes is at its highest level since last March (2018);
  • The pace of new home sales in January was revised up to 636,000 from 607,000 turning the initially reported decline into a gain;
  • The year-year drop in the median price of a new home was fourth consecutive monthly decline;

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

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The Census-HUD report on new homes (contracts for sale) offered some explanation for the steady optimism of home builders as sales rose fort eh second straight month in February.

The trend Census-HUD report is in marked contrast to the parallel pending home sales report issued Thursday by the National Association of Realtors which showed a 1 percent decline in contracts for sale of existing single-family homes in February. Unlike the NAR, the government does not report on completed sales which typically occur one-to-two months after contracts are signed.

(Friday’s report means the Census Bureau and Department of Housing and Urban Development has caught up with monthly reports delayed because of the partial government shutdown.)

The National Association of Home Builders reported last week its Housing Market Index, often referred to as builder confidence, remained at a solid 62 in March (based on February since the survey is conducted in the first 10 days of the month). There had seemed to be no data supporting the solid showing but now there is with the reversal of January’s decline and another strong month in February. It was the first time the sales rate increased in two straight months since February-March 2018.

The outlook could even be brighter as, according to the weekly Freddie Mac mortgage rate survey, the rate for a 30-year fixed rate loan fell 22 basis points last week, the largest week-week decline since June 2009 when rates fell 21 basis points.

Typically, though when rates start to drop buyers hold back expecting even further declines. While that may not help builder profits as much, it will help furniture and appliance retailers and swell the number of construction jobs. Earlier this month, the Bureau of Labor statistics reported the number of residential construction jobs fell 11,000 in February, the largest month-month decline since October 2010 during the Great Recession.

Earlier this week, the Bureau of Economic Analysis reported residential fixed investment spending dropped 7.3 billion in the fourth quarter and for all of 2018 was off 23.3 percent from a year earlier. Residential fixed investment (essentially home building) accounts for about 3.3 percent of total Gross Domestic Product.

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.

Pending Home Sales Index Down Again in February

Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • National Association of Realtors’ February Pending Home Sales Index (PHSI) FELL 1.0 percent from January to 101.9;
  • January index was revised down to 102.9 from 103.2
  • Year-year the index was DOWN 4.9 percentage points;

Trends:

  • The February decrease was the fourth in the last five months;
  • Index is down year-year for 14 straight months;

Data Source: National Association of Realtors (NAR)

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In another blow to home sales the NAR’s pending home sales index dropped again in February the fourth decline in the last five months. The drop in the NAR forecasting tool followed the Census Bureau report earlier this month that new home sales for January (contracts for sale) were off 6.9 percent. The report on new home sales for February I scheduled for release tomorrow.

The NAR report is yet another blow for an already beleaguered home sales market. Which has seen this key indicator for year-year for 14 straight months. The drop in the PHSI often presages a decline in existing home sales. The index fell in seven of the last 12 months and existing home sales dropped nine times, not a perfect match, but very close.

Adding to the already know explanations for the drop – heavy student loan burdens by younger buyers, fear of being burned as homeowners were in the Great Recession and slow increases in earnings, there’s now another concern with louder and more prolonged discussion of a coming recession.

The one positive sign is interest rates. With the decision by the Federal Open Market Committee at its meeting this month to now raise the benchmark Fed Funds rate, mortgage rates continue to trend downward reinforced by the FOMC indications it may be done raising rates for this year.

Still, the Fed Funds rate has little to do with mortgage rates which are tied usually to the London Interbank Offering Rate (LIBOR) and not the prime rate which is determined by the Fed Funds rate.

But reforms from the Great Recession / mortgage crisis have altered the lending landscape, eliminating easier to qualify low- and no-doc loans, the type that consigned many financial institutions to the dustbins of history and tightened lending requirements.

The PHSI data followed by just a few days President Trump’s announcement of plans to revamp the nation’s housing finance system, by, among other things, noting the importance of preserving the 30-year, fixed-rate mortgage, a bedrock housing finance.

The president’s announcement followed two days of hearings before the Senate Banking Committee

The next step is for Congress to move this process forward to revamp the housing finance system in a way that won’t interrupt the flow of credit.

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

1st-time Unemployment Insurance Drop to 6-Month Low

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • 211,000 1st time claims for unemployment insurance for the week ended March 16, a DECLINE of 5.000 from the prior week’s downwardly revised 216,000 (originally 221,000);
  • The four-week moving average of first-time claims FELL 3,250 to 217,250;
  • Four week moving average represented 0.138 percent of employment, DOWN from 0.140 the previous week;
  • The number of continued claims – individuals who had been collecting unemployment insurance — reported on a one-week lag, was 1,760,000 for the week ended March 9, UP 13,000 from the previous week’s downwardly REVISED 1,743,000 (from 1,750,000)
  • The four-week moving average of continued claims DROPPED 4,250 to 1,751,250.

Trends:

  • First -time claims fell to the lowest level since last September (28 weeks)
  • Initial claims have now fallen for three weeks in a row for only the second time since last May
  • The four-week moving average of continued claims fell for the first time since last December

Data Source: Department of Labor

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With revisions dating back to 2014, the Department of Labor painted a rosier picture of the jobs market showing a lower level of initial (and continued) claims for unemployment insurance than had previously been reported.

And, indeed, data for the most recent week also suggested a calming in the labor market, free of the noise from the partial government shutdown. With the numbers looking better, the Labor Department data showed the first decline in continued claims since December and only the second since last fall. A drop in continued claims typically means stronger hiring – even stronger than we’ve seen in recent months

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.

Residential Construction Activity Slips in February

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Home building activity, measured by housing permits and starts SLIPPED in February, as both starts and permits fell;
  • The seasonally adjusted annual rate of permits DIPPED 1.6 percent to a seasonally adjusted annual rate of 1.296 million; all the decline came in multi-family (about 37 percent of the total) which fell 4.3 percent;
  • The pace of starts FELL 8.7 percent or 111,000 to 1.162 million. Single-family starts DROPPED 17.0 percent or 165,000 while the rate of multi-family starts IMPROVED 54,000 or 17.8 percent;
  • The rate of total housing completions ROSE 56,000 or 4.5 percent. Single-family completions DROPPED 91,000 or 10 percent, while the pace multi-family completion ROSE 147,000 or 43.2 percent.

Trends:

  • The pace of new housing permits fell to its lowest level since October;
  • Year-year, the rate of new single-family permits is down for five straight months;
  • The rate of new single-family starts dropped to its lowest level since June 2017;
  • Total starts fell to the lowest level since May 2017.

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

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Housing – most notably home building — continues to struggle as the Census Bureau reported a further slippage in building permits and starts in February.

At the same time, in what might be good news, housing completions declined which means inventories may not swell.

Nonetheless, the slowdown in new home sales (with a couple of month-month exceptions) has not been due to lack of inventory. At the last report fo new home sales, the Census Bureau-HUD said the months’ supply was 6.6, second highest in the last seven years, exceeded only by the 7.2 month supply last October.

In January, completions (9007,000) exceeded new home sales by 300,000 – the second widest gap since December 2008.

Home sales continue to struggle against declining interest by younger buyers who find themselves challenged by student debt burdens. Indeed it is somewhat surprising the real estate industry hasn’t stepped in to offer assistance.

Mortgage interest rates, according to Freddie Mac, have been ticking down and with the recent decision by the Federal Reserve Open Market Committee to hold the target Fed Funds rate, mortgage rates are unlikely to go up anytime soon. Sometimes the fear of higher mortgage rates spurs sales as buyers grow want to close a deal before rates go higher. Not the case now.

The moribund permits and starts data raise questions about why the National Association of Home Builder’ Housing Market Index has remained at relatively high levels  — 62 out of 100 at the last reading.

The index, a measure of builder confidence, while up from 58 at year end, is down from 70 a year ago. And, construction sector jobs – for residential construction workers – fell 11,000 in March, the largest month-month drop since October 2010.

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

1st-time Unemployment Insurance Resume Decline

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • 221,000 1st time claims for unemployment insurance for the week ended March 16, DOWN 9.000 from the prior week’s revised report (229,000 to 230,000);
  • The four-week moving average of first-time claims UP 1,000 to 225000;
  • Four week moving average 0.143 percent of employment, UNCHANGED from the previous week;
  • 1,750,000 continued claims – individuals who had been collecting unemployment insurance — reported on a one-week lag for the week ended March 9, DOWN 27,000 from the prior week’s revised report (1,776,000 to 1,777,000)
  • Four-week moving average of continued claims UP 6,000 to 1,772,500.

Trends:

  • First increase in four-week moving average of initial claims since mid-February;
  • The four-week moving average of continued claims rose for 18th time in 19 weeks

Data Source: Department of Labor

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With the temporary government shutdown far in the rear-view mirror, initial claims for unemployment insurance fell for the week ended March 16.

Federal government workers aren’t included in the tabulation of state unemployment insurance claims but employees of government subcontractors (private sector) are. The data suggest those employers may have fully re-stocked.

The largest single state decrease in new claims claim in New York (for the week ended March 9) with fewer layoffs in the transportation and warehousing, accommodation and food service, and educational service industries First-time claims for unemployment insurance fell 16,497 in New York.

The national data suggest yet a further decline in the number of persons unemployed and perhaps in the unemployment rate when the Employment Situation report for March is released April 5. The four-week moving average of first-time claims fell 11,000 from mid-February to mid-March, the largest mid-month to mid-month drop since last May when the four-week moving average fell 18,000 and the unemployment rate dipped to 3.8 percent from 3.9 percent in April as the number of persons unemployed fell 207,000.

The four-week moving average of first time claims and the unemployment rate don’t always however move in lockstep: In January when the four-week moving average fell 2,250 from mid-December to mid-January, the unemployment rate increased from 3.7 percent to 3.9 percent. Individual unemployed for fewer than five weeks typically make up about 40 percent of total unemployment.

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.

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.