Tag: Housing Starts

Monday Economic Report – August 25, 2014

Here is the summary of this week’s Monday Economic Report:

Market leaders continue to play the guessing game of when the Federal Reserve Board will start to normalize short-term interest rates. Conventional wisdom suggests that the Federal Open Market Committee (FOMC) will begin to raise the federal funds rate sometime in 2015 from the near-zero levels that have been prevalent since the financial crisis in 2008. The Federal Reserve has already announced that it will cease purchasing long-term and mortgage-backed securities in October. In the July FOMC meeting minutes, participants noted recent improvements in the economy, including increased activity among manufacturers (see below). Most notably, they said the following regarding monetary policy over the next few months:

“…many participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated.”

That line, which was widely reported in the media, was seen as hawkish. Indeed, financial markets saw that statement as a sign that short-term rates might rise sooner than expected, perhaps as early as the first quarter of 2015. In her keynote speech at a Kansas City Federal Reserve economic symposium at Jackson Hole, Wyoming, Federal Reserve Chair Janet Yellen reiterated this point, noting the role that upcoming economic data will have on the timing of policy normalization. She cited continued “slack” in labor markets, but also highlighted positive developments more recently. Either way, it remains true that monetary policy will remain highly accommodative for the foreseeable future, with short-term rate hikes (whenever they occur) being gradual. Recent data on consumer and producer prices have shown inflationary pressures easing a bit, even as they remain near the Federal Reserve’s stated target of 2 percent.

Meanwhile, economic data released last week suggest that the manufacturing rebound that we have seen since the winter continues to strengthen. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased sharply, up from 55.8 in July to 58.0 in August, reaching its highest level since April 2010. The indices for new orders and production were both above 60, suggesting strong growth and closely mirroring similar data from the Institute for Supply Management (ISM). The Philadelphia Federal Reserve Bank’s manufacturing survey also reported healthy gains in August, with activity growing at its fastest pace in more than three years, and respondents were very upbeat in their assessment of the next six months. Still, if there are any weaknesses of note, it would be overseas. Manufacturing demand and output were softer in both China and Europe, for instance.

The housing market also appears to be faring better of late, recovering somewhat from the lull that we saw earlier in the year. Housing starts jumped 15.7 percent in July, offsetting significant declines in both May and June. Starts reached their second-highest pace since November 2007, with an annualized 1,093,000 units in July. Both single-family and multifamily construction activity were higher for the month, and housing permits also reflected progress. In addition, existing home sales also notched improved figures in July, with activity up for the fourth straight month. Overall, this is encouraging news for residential construction. We would expect a solid 1.1 million housing starts at the annual rate by year’s end, representing slow-but-steady progress.

This week, we will get an update on second-quarter real GDP, with consensus expectations calling for a slight downward revision from the 4.0 percent growth rate estimate announced in late July. The new figure would still represent a rebound from the first quarter’s decline of 2.1 percent. We will also see if regional activity continues to expand in the August manufacturing surveys from the Dallas, Richmond and Kansas City Federal Reserve Banks, mirroring what we have seen in the similar New York and Philadelphia Federal Reserve reports. Other highlights include the latest data on consumer confidence, durable goods orders and personal income and spending.

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

markit us pmi - aug2014

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Housing Starts Rebounded in July to Their Second-Highest Pace since the Recession

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts increased 15.7 percent in July, offsetting significant declines in both May and June. Starts increased from an annualized 945,000 in June to 1,093,000 in July. This was the fastest pace since the 1,105,000 rate observed in November, making it the second-highest pace since November 2007. This is a sign that the lull that we have seen in the housing market so far this year has begun to dissipate, which is definitely a positive sign. New residential construction starts have increased 21.7 percent year-over-year.

The bulk of the increase in July stemmed from the highly-volatile multi-family segment, up from 339,000 to 437,000. This was the fastest pace in multi-family construction activity since January 2006. At the same time, single-family starts also improved, up from 606,000 to 656,000, the highest rate since December. Single-family starts have increased 10.1 percent over the past 12 months.

Meanwhile, housing permits mirrored the progress with starts data, rising 8.1 percent in July after two consecutive decreases in May and June. Housing permits grew from 973,000 at the annual rate in June to 1,052,000 in July, representing an increase of 7.7 percent year-over-year. Single-family (up from 634,000 to 640,000) and multi-family (339,000 to 412,000) permitting were both higher, with the latter up a whopping 21.5 percent for the month.

Overall, July’s housing numbers were encouraging, particularly given the softness seen earlier in the year. Housing starts had averaged 961,000 from January to June, bottoming out at 897,000 in January. Financial difficulties in obtaining credit (particularly for first-time home buyers) and economic uncertainties were obstacles for some. Moving forward, we would expect August’s housing data to remain above the one-million mark, with starts solidly at 1.1 million by year’s end, representing slow-but-steady progress in the residential market.

This would be consistent with rising confidence in the National Association of Home Builders and Wells Fargo report released yesterday. The Housing Market Index increased for the third straight month, up from 53 in July to 55 in August. It was the second month with the index above 50, an indication that more home builders were positive than negative in their outlook. More importantly, it was the highest level since January, with builder confidence lagging from February to June with an average of 46.4 over that five-month span. The latest rebound is perhaps a sign that the sector has begun to recover somewhat.

Indeed, the index of expected single-family sales over the next 6 months rose from 63 in July to 65 in August, its fastest pace in 12 months. With that said, some of the underlying data indicate that persistent challenges remain. For instance, the index of buyer traffic, while up from 39 to 42, remains below the all-important threshold of 50. Moreover, the regional data were mixed, with home builder confidence up in the Midwest and Northeast but marginally lower in the South and West.

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

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Monday Economic Report – July 21, 2014

This is the summary for this week’s Monday Economic Report: 

With more and more data starting to trickle in for June, we are seeing some definite trends taking shape. One positive is that the manufacturing sector continues to expand, suggesting that the rebound from winter-related softness earlier in the year has mostly continued. Manufacturers also tend to be mostly upbeat about the second half of this year—a sign of optimism that is encouraging. Yet, there were also indicators suggesting that the pace of activity slowed somewhat in June, most notably in the industrial production, housing starts and retail sales numbers that were released last week.

Indeed, manufacturing output in June increased at its slowest rate since January, with relatively mixed news overall. Nondurable goods production edged higher, up 0.1 percent, but output from nondurable goods manufacturers declined by 0.3 percent. Monthly declines in production in such sectors as apparel, machinery and motor vehicles nearly offset output gains for aircraft, furniture, metals and plastics, and rubber products. Longer-term trends remain reassuring, even if they still leave room for improvement. Over the past 12 months, manufacturing production has increased 3.5 percent, a decent figure overall and progress from the much slower pace of just 1.5 percent in January. Durable goods output has risen by a healthy 5.5 percent year-over-year, whereas nondurable goods activity was a less robust 1.5 percent in the past year.

Housing starts in June were also weaker than expected, down from an annualized 985,000 in May to 893,000 in June. Starts were lower for both single-family and multifamily units. There have been suggestions that rain might have attributed to the weaker construction activity, with storms preventing some units from breaking ground. Yet, single-family starts have struggled for some time, down 4.3 percent over the past 12 months. On the positive side, single-family housing permits rose for the second straight month, up from 615,000 to 631,000 at the annual rate for the month. This could suggest stronger growth in the housing market in the coming months for single-family homes. Along those lines, homebuilder confidence increased to its highest point since January, with better expectations for sales over the next six months.

Meanwhile, surveys out last week reported multiyear highs in the pace of manufacturing activity. New orders and shipments were up sharply in surveys from the New York and Philadelphia Federal Reserve Banks. Hiring also picked up in both regions, and raw material costs remained elevated relative to prior months. More importantly, manufacturers in each survey said they were optimistic that sales, output, employment and capital spending would increase over the next six months. In fact, the Philadelphia Federal Reserve report found that 56.1 percent of its respondents anticipated higher new orders, with 60.4 percent predicting increased shipment levels. In addition, the Manufacturers Alliance for Productivity and Innovation (MAPI) reported that the business outlook rose for the sixth consecutive quarter on accelerated sales domestically and abroad. Shipments and capital spending were also anticipated to grow strongly moving forward.

On the consumer front, Americans continue to be cautious in their purchase decisions. Retail spending increased 0.2 percent in June. This was the slowest pace since January, and it was below expectations. Reduced auto sales contributed to this lower figure. Despite the slower activity levels in June, the year-over-year pace continues to grow at decent levels, up 4.3 percent over the past 12 months. Preliminary consumer confidence data also indicate some nagging anxieties in the economy, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Index unexpectedly decreased from 82.5 in June to 81.3 in July, and consumer attitudes have not changed much since December. Much of July’s decrease stemmed from weaker expectations about the future economy. However, higher gasoline prices might have also been a factor. Indeed, the producer price index increased in June largely on higher energy costs.

This week, we will get additional insights on the health of manufacturing worldwide. Markit will release preliminary purchasing managers’ index reports for China, Japan, the Eurozone and the United States for July. We will be looking for continued progress in Asia and the United States and we hope a reversing of the easing in activity in Europe. The Kansas City and Richmond Federal Reserve Banks will also report on their latest manufacturing surveys. Beyond these releases, the Bureau of Economic Analysis will publish real GDP data by industry for the first quarter; given the 2.9 percent drop in real GDP during the first quarter, we would anticipate minimal contributions to growth from the manufacturing sector. Other highlights include the latest data on consumer prices, durable goods orders and existing and new home sales.

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

manufacturing production growth - jul2014

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Housing Starts Were Unexpectedly Lower in June

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts unexpectedly declined for the second straight month. Starts dropped from an annualized 985,000 in May to 893,000 in June. This was down from the faster pace of 1,063,000 in April; although, that figure appears to be a bit of an outlier. Excluding April, the average rate of new housing starts through the first half of 2014 was 930,600. Even with that in mind, June’s pace was disappointing and a sign that the housing market remains weaker than we would prefer.

Indeed, new housing starts were off for both single-family (down from 632,000 to 575,000) and multi-family (down from 353,000 to 318,000) units.The pace for single-family starts was the lowest level since November 2012, highlighting some persistent softness in the residential construction market so far this year. While the longer-term trend remains positive, single-family housing starts have fallen 4.3 percent over the past 12 months.

Meanwhile, housing permits data also fell, down from 1,005,000 units at the annual rate in May to 963,000 in June. Unlike the starts figures, however, there were some encouraging signs. Single-family permitting rose for the second straight month, up from 597,000 in April to 615,000 in May to 631,000 in June. This could suggest stronger growth in the housing market in the coming months for single-family homes. At the same time, multi-family units have been weaker, pulling the headline figure lower. Multi-family permitting dropped from 462,000 to 390,000 to 332,000 over the same three months, with the most recent pace being the slowest in 10 months.

Overall, June’s housing numbers were quite discouraging. There was optimism a couple months ago that residential activity was beginning to pick up after weakness since last summer, and the consensus expectation had been for housing starts to exceed one million again in June. Yet, the housing market continues to underperform through the first six months of this year. Financial difficulties in obtaining credit (particularly for first-time home buyers) and economic uncertainties remain obstacles for some. Still, I continue to predict housing starts of 1.1 million by year’s end, and we can put some hope in the single-family housing permits figures and the possibility of improved activity moving forward.

For its part, the Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo, released yesterday, suggested that builders were more upbeat of late. The HMI increased from 49 in June to 53 in July, the first time the index has surpassed the all-important threshold of 50 since January. When the HMI exceeds 50, it indicates that more home builders are positive than negative in their views of the market. More importantly, the index of single-family sales increased from 53 to 57, with expected sales over the next six months rising from 58 to 64.

As such, NAHB Chief Economist David Crowe was more positive in his assessments of the housing market, with recently better jobs numbers boosting sentiment. He said, “As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.” Hopefully, this improvement in home builder confidence helps to foreshadow better sales in the months ahead.

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

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Monday Economic Report – June 23, 2014

Here are the files for this week’s Monday Economic Report:

The Federal Reserve Bank downgraded its estimates of growth for 2014, with real GDP growth of 2.1 percent to 2.3 percent. This was down from its March projection of 2.8 percent to 3.0 percent, largely due to weaknesses in the first quarter. Nonetheless, the Federal Reserve still projects a pickup in activity during the second half of the year that will continue into 2015, with an unchanged outlook of 3.0 percent to 3.2 percent growth next year. The unemployment rate is anticipated to fall to 6.0 percent by year’s end and as low as 5.4 percent in 2015.

With that in mind, the Federal Open Market Committee (FOMC) observed that “growth in economic activity has rebounded in recent months,” even as it cited continued slack in the labor market. The FOMC continued to taper its asset purchases, down from $45 billion per month to $35 billion, and it mostly reiterated its intent to keep a highly accommodative monetary policy stance for the foreseeable future. Short-term interest rates are expected to start rising at some point next year. Yet, there is renewed chatter among “inflation hawks” about increased pricing pressures of late. Core consumer prices, which exclude food and energy costs, rose 1.95 percent over the past 12 months, its fastest year-over-year pace in 19 months. While inflation still appears to be in check, the recent run-up in costs has fueled a debate about whether short-term rates might need to increase sooner than conventional wisdom might suggest.

For manufacturers, activity continues to recover from winter-related softness at the beginning of the year. Manufacturing production has risen 2.8 percent since January’s decline, with 3.6 percent growth over the past 12 months. Capacity utilization for the sector increased to 77.0 percent in May, its highest level since March 2008. Similarly, manufacturers in the New York and Philadelphia Federal Reserve districts reported strong growth in their respective June surveys. More importantly, respondents were mostly optimistic about future activity. More than half of those taking each survey said they anticipate increased new orders over the next six months. The Philadelphia Federal Reserve report also noted that 73.9 percent of its manufacturers predicted increased production in the second half of this year, with nearly 48 percent forecasting output growth of more than 4 percent.

Meanwhile, the housing market has provided mixed progress so far this year, even as we remain cautiously optimistic about future months. New housing starts decreased from an annualized 1,071,000 units in May to 1,001,000 in June. Despite the decline, it was the second straight month that starts have exceeded 1 million units, and the underlying trend remains positive. April’s figure was an outlier, with the year-to-date average being 969,000. As such, we continue to make slow-but-steady progress. At the same time, housing permits also declined, but single-family permitting increased from 597,000 units at the annual rate to 619,000, the fastest pace since November. This could be a sign that residential construction will accelerate in the months ahead. I still believe we will reach 1.1 million housing starts by year’s end. Moreover, homebuilder confidence was also higher for the month.

This week, we will get additional data on the health of the housing and manufacturing sectors. The Kansas City and Richmond Federal Reserve Banks will unveil their latest surveys, and Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. We hope they will continue to reflect rebounding activity in the United States, and analysts will be closely following the June Chinese PMI data to see if the sector expands for the first time in 2014. The other key number to watch will be the second revision of real GDP for the first quarter. The consensus estimate is for the decline in output to exceed 1.5 percent, worse than the 1.0 percent decrease in the first revision. Other highlights include new data on consumer confidence, durable goods orders and shipments, existing and new home sales and personal income and spending.

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

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Housing Starts and Permits Decline in May, with Both Hovering Around 1 Million Annualized Units

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts and permits both declined in May. New housing starts decreased from an annualized 1,071,000 units in April to 1,001,000 in May, with the annual pace staying above one million for the second straight month. The average pace for new housing starts so far in the first five months of 2014 was 969,000, suggesting that we continue to make slow-but-steady progress on the residential front. It also appears that April’s jump was a bit of an outlier. Nonetheless, housing starts have increased 9.4 percent since May 2013.

Much of the volatility over the past few months has come from the multi-family housing segment, which has hovered between an annualized 314,000 in January to April’s 407,000. In May, multi-family housing starts declined to 376,000 units. Perhaps more disappointingly, single-family starts were also lower for the month, down from 664,000 to 625,000.This was the lowest level since February and highlights some persistent softness in the residential construction market, even as the longer-term trend continues to edge slightly higher. For instance, single-family housing starts remain 4.7 percent higher on a year-over-year basis even as the pace remains below the more rapid rates seen at the end of 2013.

Meanwhile, housing permits data also fell, down from 1,059,000 units at the annual rate to 991,000. Yet, the permitting data – which suggest future activity for residential construction – were perhaps more encouraging than the headline figure might suggest, particularly for single-family homes. Single-family housing permits increased from 597,000 in April to 619,000 in May, their fastest pace since November and hopefully a sign of a possible pickup. At the same time, multi-family permitting declined from 462,000 to 372,000, pushing the overall numbers lower.

Overall, May’s housing numbers provided mixed news. New residential starts and permits were both lower in May, and single-family starts off 5.9 percent for the month. Still, single-family permitting moved higher, which should indicate more construction down the line. Moreover, the longer-term trend remains positive, even as growth has slowed significantly since mid-2013. I continue to predict housing starts of 1.1 million by year’s end, but higher interest rates, financial difficulties in obtaining credit (particularly for first-time home buyers), and economic uncertainties will continue to dampen growth.

The Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo provided additional good news and signs of slight improvement. The HMI increased from 45 in May to 49 in June, its highest point since January. Much of this progress stemmed from higher home builder sentiment in the Midwest, South, and West, particularly the latter two. More importantly, the index of single-family sales increased from 48 to 54, with expected sales over the next six months rising from 56 to 59. The fact that these figures are over 50 indicates that more builders are positive than negative.

Even with these positive developments, NAHB Chief Economist David Crowe noted the tentativeness that still exists in the marketplace. He said, “Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase.” Such caution, he noted, has led home builders to adjust their plans as a result.

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

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Monday Economic Report – May 19, 2014

Here is the summary for this week’s Monday Economic Report: 

There are numerous signs that global economic growth is lower than expected in 2014, with some disappointing data coming in last week. For instance, industrial production numbers were weaker in a number of countries, including slower industrial growth in China in April relative to just a few months ago and falling output in March in the Eurozone. Europe also learned that real GDP rose at the very slow pace of 0.2 percent in the first quarter, prompting new worries about sluggish income and labor market growth on the continent. Meanwhile, in the United States, the Federal Reserve reported that manufacturing production fell 0.4 percent in April. This followed relatively strong rebounds in February and March from winter-related softness in December and January. Still, output continues to reflect modest gains year-over-year, particularly for durable goods.

Despite April’s decline in industrial production, other data suggest that manufacturing activity in the United States appears to be recovering from earlier weaknesses. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks both show relatively strong expansions in their regions, even as the Philly Fed report eased a bit in May from April. New orders, shipments and employment reflected continuing expansion from the previous survey. More importantly, manufacturers in each district remained mostly upbeat about the next six months, with more than half of the respondents in both surveys anticipating new orders to increase moving forward. For their part, small business owners were also more optimistic, with the National Federation of Independent Business’s (NFIB) key index rising to its highest level since October 2007.

At first glance, the housing data released last week were also quite positive. Housing starts exceeded 1 million again for the first time this year, up from an annualized 947,000 units in March to 1,072,000 in April. New residential permitting was also higher. Yet, the bulk of April’s increases in both measures were primarily due to the more volatile multifamily housing segment. Single-family starts and permits were only marginally higher, but remain below the recent peaks last November. As such, there is perhaps more softness in the market than the headline figure indicated. (We will get existing and new home sales figures this week.) Indeed, homebuilder confidence fell to its lowest point in 12 months, with consumer anxieties cited as a concern. On the positive side, builders were somewhat more hopeful about future activity.

Consumer data were mixed. Retail sales increased 0.1 percent in April, extending the strong gains from February and March. Auto sales comprised much of April’s gains, with retail spending outside of motor vehicles unchanged from March. As such, consumers appeared to be somewhat cautious in April. This showed up in the latest consumer confidence data as well. The University of Michigan and Thomson Reuters reported that consumer sentiment edged slightly lower in May in its preliminary data, with Americans more concerned about current economic conditions. In terms of prices, consumer inflation has started to pick up slightly, led by higher food costs, but core pricing pressures remain below 2 percent at the annual rate, at least for now. A similar pattern was observed for producer prices.

This week, we will get more news on the health of the manufacturing sector worldwide, with flash Purchasing Managers’ Index (PMI) data from Markit for the United States, Europe, China and Japan. The Kansas City Federal Reserve will also release its latest sentiment survey. Finally, the Federal Open Market Committee (FOMC) minutes from its April 29–30 meeting will be released, providing some insights about current Federal Reserve debates. However, that meeting hardly produced any surprises, with the FOMC continuing to taper its asset purchases and the Federal Reserve’s forward guidance still pointing to short-term rate increases sometime next year.

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

yoy industrial production growth - may2014

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Housing Starts and Permits Were Up Markedly in April, Particularly for Multi-Family Units

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts and permits were up markedly in April, particularly for multi-family units. New housing starts were over one million annualized units again for the first time since December, up from an annual rate of 947,000 in March to 1,072,000 in April. This represented a 13.2 percent gain for new residential construction for the month, with a 26.4 percent year-over-year increase.

With that said, the headline housing starts figure was higher primarily because of the more volatile multi-family construction segment, which increased from 289,000 in March to 413,000 in April.

On the other hand, new single-family construction starts rose more modestly, up from 644,000 to 649,000. This was the third straight increase, but single-family activity moving gradually higher over the longer term, up 9.8 percent since April 2013. Single-family starts, however, remain below their recent peak of 710,000 units observed in November.

Meanwhile, housing permits data also had a nice increase, up from 1,000,000 annualized units to 1,080,000 in April. Similar to housing starts, the monthly jump in April stemmed largely from multi-unit permitting, up from 372,000 to 453,000. This was the fastest pace for multiple unit residential permitting since June 2008. At the same time, single-family activity was up from 600,000 to 602,000. Reflecting recent softness, single-family permits have actually declined 3.2 percent year-over-year and remain below the 645,000 level seen in November’s data.

In essence, the housing data are positive, but perhaps not as upbeat in the final reading. It is definitely good news that multi-family residential activity increased strongly for the month, and the data continue to move in the right direction overall. Yet, single-family housing starts and permits remained challenged, with growth at a much more gradual pace.

The Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo echoed some of these themes. The HMI declined from 46 in April to 45 in May, its lowest level in 12 months and well below the recent high of 58 in August 2013. NAHB Chief Economist David Crowe blamed some of the current weakness on consumer unease, saying “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”

While the data were only marginally different than the month before, the NAHB report did provide some optimism for home builders moving forward. The index for expected single-family sales over the next six months edged higher for the second consecutive month, up from 56 to 57. While the index remains below where it was at the end of 2013, home builders continue to be more positive than negative in their outlook (with an index reading over 50).

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

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Monday Economic Report – March 24, 2014

Here is the summary for this week’s Monday Economic Report:

For much of the past month, people have been questioning how much of the recent softness in the manufacturing sector was due to weather and how much stemmed from other factors. The data released last week support the view that it was largely weather related, with numerous winter storms keeping shoppers from the stores and closing factories temporarily. Fortunately, manufacturing activity has rebounded in the latest reports. For instance, manufacturing production increased 0.8 percent in February, nearly offsetting January’s 0.9 percent decline, with capacity utilization for the sector rising from 75.9 percent to 76.4 percent. Similar rebounds were seen in the March surveys from the New York and Philadelphia Federal Reserve Banks, and more importantly, manufacturers continue to be mostly upbeat about new orders and shipments over the next six months.

In its monetary policy statement, the Federal Reserve Board’s Federal Open Market Committee (FOMC) acknowledged the negative effects of “adverse weather conditions” on recent activity. It also provided the following evaluation of the current economic environment:

Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

The biggest news from the FOMC’s statement was the change in its forward guidance, as expected, to no longer mention an unemployment rate target. Since its December 2012 meeting, the FOMC has said it would pursue a highly accommodative monetary policy until the unemployment rate hit 6.5 percent and/or long-term inflation consistently exceeded 2.0 percent. With unemployment falling, this put the Federal Reserve in a predicament because job growth continues to be a challenge, particularly for the long-term unemployed, and progress in the unemployment rate fails to acknowledge loforw participation rates and underemployment that exists in the labor market. For this reason, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota opposed the change in the Fed’s guidance, and he subsequently said that he wanted a 5.5 percent unemployment rate target.

In the end, however, short-term interest rates cannot hover around zero percent forever, particularly with the U.S. economy improving. The Federal Reserve now forecasts real GDP growth in 2014 of 2.8 percent to 3.0 percent, with the unemployment rate falling to 6.1 percent by year’s end. The FOMC continued to taper its long-term asset purchases, down from $65 billion each month to $55 billion, and short-term interest rates are now expected to start rising sometime in 2015. (This is true even with new Federal Reserve Chair Janet Yellen’s suggestion that rates might begin to increase around six months after quantitative easing ends, a comment that spooked markets on Wednesday.)

Fortunately for the Federal Reserve, inflationary pressures remain minimal, allowing the FOMC to continue its stimulative measures for now. Consumer prices rose 0.1 percent in February, with core inflation increasing 1.6 percent over the past 12 months. Of course, higher interest rates could negatively impact spending, particularly for large consumer items and for business investments.

Along these lines, housing starts have stabilized a little, up from 905,000 annualized units in January to 907,000 in February, but still remain somewhat weak. On the positive side, housing permits—a proxy of future activity—exceeded 1 million for the first time since November, largely on gains in multifamily residential construction. Single-family permitting remained soft, however, and homebuilder sentiment continued to be down from where it was just a few months ago. In addition to weather challenges, National Association of Home Builders (NAHB) Chief Economist David Crowe attributes the current weakness to “a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

Today, we will get March Markit Flash Purchasing Managers’ Index (PMI) data for the United States, China and Eurozone. In particular, economists will be looking to see if Chinese manufacturing activity continues to decelerate and if the slight easing in February’s data was a one-month phenomenon. (For more on international trends, see the latest Global Manufacturing Economic Update, which was released on Friday.) Other highlights this week include updates on consumer confidence, durable goods orders and shipments, GDP, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks, personal income and spending and state employment.

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

fed funds rate - mar2014

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Housing Permits Top 1 Million Again, but Softness Persists for Starts

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts decline by 2,000 in February to an annualized 907,000 units. With that said, new residential construction data for January were revised higher, up from the original estimate of 880,000 to 909,000, making the decline less of a story than the upward revision. Indeed, it appears that the housing market is starting to stabilize and perhaps rebound, particularly when you look at housing permits numbers (see below).

Looking specifically at the starts figures, new single-family residential construction increased marginally in February, up from 581,000 to 583,000. This was still below both the recent peak of 713,000 observed in November and the average for single-family housing starts for 2013 of 621,083. At the same time, multi-family housing starts edged slightly lower, down from 328,000 to 324,000. This was above the 2013 average of 308,000 but below the five-year high of 388,000 seen in November.

This data perhaps reflect continued negative effects from weather. The largest declines in housing starts were in the Northeast, down from 120,000 in January to 75,000 in February. The other region with weaker starts data was the West, but the Midwest and South experienced more residential construction activity for the month.

Meanwhile, the housing permits data provide us with optimism that the sector has begun to improve. New residential construction permits rose from an annualized 945,000 in January to 1,018,000 in February, essentially back to the trend seen in November. Yet, our positivity is nuanced by the fact that the monthly gains in permitting stemmed from multi-family units (up from 346,000 to 430,000), with single-family permit activity still soft (down from 599,000 to 588,000). Nonetheless, this the fourth time in the past 12 months that total permits have exceeded one million, potentially boosting some confidence moving forward.

For its part, the Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo increased from 46 in February to 47 in March. The HMI measured 58 in August, its highest level since November 2005 but has edged lower since then. In fact, this was the second month in a row that the HMI has been below 50, suggesting that more home builders were negative in their assessment of the market than were positive.

The NAHB attributes part of the current weakness among home builders on the weather, but there were other factors cited, as well. David Crowe, NAHB’s chief economist, said that these other factors “include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

The index for expected single-family sales over the next six months has fallen from 62 in December to 54 in February to 53 in March. This drop has been disappointing, and yet, putting a positive spin on it, home builders continue to be more positive than negative (with an index reading over 50).

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

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