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Homebuilder Confidence Slipped in July but Remained Elevated

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The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index continued to reflect strength despite slipping once again in July to its lowest level since the election. The index decreased from 66 in June to 64 in July, its weakest pace since October (63). NAHB Chief Economist Robert Dietz attributed much of the decline to “increasing supply-side costs,” which are dampening sentiment among builders and pushing up prices.

To be fair, index values greater than 50 indicate strong builder confidence, with readings of 60 or more indicating very strong expectations for activity, and as such, the data continue to indicate healthy growth and improvements over the longer term. Indeed, the survey results remained quite elevated even after easing from March’s reading of 71, which was the highest level since June 2005.

Along those lines, home builders have healthy assessments about single-family home sales over the next six months. The index for expected sales dropped from 75 to 73—still a very healthy figure. In the July data, sentiment ticked higher in the Northeast and the West but dropped a little in the Midwest and South.

Beige Book: Economy Growing at a Moderate Pace

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The Federal Reserve Board reported that “national economic activity continued to expand at a moderate pace” in its latest Beige Book. In general, Fed Districts have experienced modest growth in the manufacturing sector, recovering from some of the softness experienced in the spring months. There were some exceptions to this, such as the Minneapolis Fed reporting “that the pace of growth was uneven” in its region. Elsewhere, respondents found strong gains in the motor vehicles, machinery, and inputs to the housing and infrastructure sectors.

On the topic of federal budget cuts, the Fed’s report says the following:

Contacts in the Boston District reported minimal direct effects of the federal sequestration, although they were concerned about the prospect of larger effects in the fourth quarter. On the other hand, defense firms in the Kansas City and San Francisco Districts reported that the effects of the sequestration have already been passed through to actual reductions in production.

The Kansas City Fed has focused on frustrations with federal budget cuts for some time, with sample comments touching on this in its most recent survey.

Employment “held steady or increased somewhat” in the economy as a whole, but the gains in manufacturing were more modest. This finding is consistent with recent survey and jobs data, with manufacturers still somewhat hesitant to bring on new workers. Overall wage pressures remain “subdued.”

In terms of larger macroeconomic findings, the Fed noted “strong demand for automobiles and housing-related goods,” which have helped to lift consumer spending. Residential activity continued to grow moderately, with some respondents suggesting that higher mortgage rates have “spurred a pickup in recent market activity, as many `fence sitters’ were prompted to commit to purchases.” The recent existing home sales numbers made a similar observation, but other data tend to suggest that increased borrowing costs have begun to have a slowing impact on new home construction and sales.

Meanwhile, pricing pressures continue to be minimal, with core inflation below 2 percent, the desired level stated by the Federal Open Market Committee (FOMC). This has allowed the Federal Reserve to continue to pursue expansionary monetary policies, even as it contemplates an easing in asset purchases perhaps as soon as its September 17-18 FOMC meeting.

Chad Moutray is the chief economist, National Association of Manufacturers.

Home Builders Confidence Continues to Grow

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The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) rose from 41 in October to 46 in November. This is the seventh consecutive monthly increase in the HMI, having risen from 24 in April. One year ago, the index stood at 19. As such, there has been a tremendous increase in confidence in 2012, with higher sales and starts helping to propel economic growth in the sector. Builder confidence increased in November in each region of the country, with the largest gains seen in the Midwest and South.

The index for current sales of single-family homes was one of the primary drivers of November’s HMI rise, up from 41 to 49. This brings the HMI closer to the threshold of 50, which marks the neutral point in the index where home builders are equally split between those who are either positive or negative about sales conditions. Looking forward six months, single-family sales should continue to grow modestly, with that index up from 51 to 53.

NAHB Chief Economist David Crowe noted the “substantial progress” made in the housing market over the past year, but he also observed that there continue to be headwinds in the sector. He writes, “At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets.”

Tomorrow, the Census Bureau releases new housing starts and permits data. Last month, both had unexpectedly large gains, with both near 900,000 units at the annual rate. I would expect for those gains to pull back somewhat, while continuing the longer-term trend upward. The consensus estimate for October housing starts is around 840,000 units. Read More