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Archive for January, 2015
Economic Advisor: January 28, 2015
January 28, 2015


While 2014’s existing home sales were slightly down, sales in December picked up steam, as did new home construction. Meanwhile, initial jobless claims fell, but not as far as the market had hoped.

Existing Home Sales

The pace of existing home sales rebounded last December, with transactions of single-family homes, townhomes, condominiums and co-ops rising 2.4 percent from November to an annual rate of 5.04 million, the National Association of Realtors reported last week.

Looking at the year in total, 2014 saw 4.93 million home sales, a 3.1 percent decline from 2013’s 5.09 million sales. That dip was chalked up to early lackluster activity that negatively impacted 2014’s overall performance. But while volume was down, prices hit their highest level since 2007. The national median existing-home price for 2014 hit $208,500, which marked a 5.8 percent gain over 2013’s median price of $197,100.

“Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated,” said NAR Chief Economist Lawrence Yun, summarizing the year. “Sales were measurably better in the second half — up 8 percent compared to the first six months of the year.”

Shifting back to December performance, total housing inventory for the month dropped 11.1 percent to 1.85 million existing homes for sale, which represented a 4.4-month supply at December’s sales rate. This was down from November’s 5.1 months and just 0.5 percent lower than December 2013’s 1.86 million.

Not surprisingly, that inventory drop had an effect on prices. December’s median existing-home price hit $209,500, which was 6 percent higher than December 2013’s median price, and marked the 34th straight month of year-over-year price increases. That’s a concern given that wages are not keeping pace with the real estate market, according to Yun.

“A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4 percent interest rates,” he explained.

New Home Construction

While existing home inventory might have dipped, new home construction, especially for single-family homes, saw healthy gains in December. Building permits issued in December for the construction of private housing hit an annual rate 1,032,000, which marked a 1.9 percent gain over November, and a 1 percent increase of December 2013, according to last week’s report from the Census Bureau. Permits for single-family homes issued in December hit a 667,000, which was 4.5 percent higher than November and the highest point since mid 2008.

“The strength is where you’d like to see it, in single-family housing,” Societe Generale senior U.S. economist Brian Jones told Bloomberg. “It bodes well for residential real estate. It’s another thing going in the right direction for the economy.”

Starts on construction of private housing in December rose to an annual rate of 1,089,000, which was 4.4 percent over November’s revised pace of 1,043,000 and 5.3 percent higher than the December 2013 rate of 1,034,000. Starts on single-family homes in December shot up to a rate of 728,000, which was 7.2 percent higher than November’s revised rate of 679,000.

Initial Jobless Claims

First-time claims for unemployment benefits filed by the newly unemployed dropped, but not as far as expected, according to last week’s numbers from the Employment and Training Administration. Initial jobless claims filed during the week ending Jan. 17 dropped to 307,000, a decline of 10,000 from the prior week’s revised level of 317,000.

Employment watchers had expected 302,000 claims. The question on many analysts’ minds was whether the third week in a row of jobless claims over the 300,000 mark was indicative of any trend, or merely the lingering impact of holiday hire layoffs

“It has to do with noise surrounding the end of the holiday season,” RBS Securities Inc. economist Guy Berger explained in a Bloomberg interview. “There isn’t any real sign that layoffs are picking up in any real sense. It seems like the labor market is entering 2015 in pretty good shape.”

The four-week moving average, which is considered a more reliable measure of jobless activity, hit 306,500, an increase of 6,500 claims from the preceding week’s revised average of 300,000.

This week, we can expect:

  • Tuesday — Durable goods orders and new home sales for December from the Census Bureau; January consumer confidence from The Conference Board.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration.
  • Friday — Fourth quarter gross domestic product from the Bureau of Economic Analysis; January consumer sentiment from the University of Michigan and Thomson-Reuters Survey of Consumers.

Posted in Economic Advisor

Economic Advisor: January 21, 2015
January 21, 2015


The sharp drop in gas prices hurt December retail sales and sent consumer prices to a six-year low, while layoffs of holiday hires pushed initial jobless claims hit a four-month high.

Retail Sales

December’s retail performance was an example of how one variable can throw off a monthly total. Sales of retail goods and food services sales for December dropped 0.9 percent to 442.9 billion, according to advanced figures released last week by the Census Bureau. While sales were down for the month, they were still up 3.2 percent from December 2013.

The big factor was energy costs, and specifically gasoline sales, which fell a considerable 6.5 percent during December. This, of course, has to do with the substantial drop in gasoline prices, which economists are still trying to definitively explain; gas prices in December were 58 percent lower than the $107-a-barrel high set in July. Given that variable, December’s drop is likely not indicative of a trend.

“There is [no] basis for believing the weakness in December alone represents a change in the trend,” High Frequency Economics’ Jim O’Sullivan told Fortune.

Other notable retail sectors were electronics stores, which dropped 1.6 percent; building materials stores, which dipped 1.9 percent; general merchandise stores, which fell 0.9 percent; clothing stores, which were up 0.8 percent; furniture stores, which gained 0.8 percent; and health stores which grew 0.5 percent.

Consumer Price Index

In related news, the consumer price index for December dropped 0.4, the Bureau of Labor Statistics reported last week. On a year basis, the index was up 0.8 percent from December 2013. This was the biggest cost of living drop in six years.

Like retail sales, the big influence on December’s prices was gasoline, index for which dropped by a considerable 9.4 percent. The fuel oil index also saw a steep drop, falling 7.8 percent for the month. As a whole, the energy index was down 4.7 percent.

“The gasoline plunge was massive in the CPI for the past two months, and is about to upgrade to gargantuan in early 2015,” IHS Global Insight U.S. economist Michael Montgomery told the Los Angeles Times.

Initial Jobless Claims

Initial jobless claims hit their highest point since September, according to data released last week by the Employment and Training Administration. First-time claims for unemployment benefits filed by the newly unemployed during the week ending Jan. 10 shot up to 316,000 claims, a substantial increase of 19,000 from the preceding week’s revised level of 297,000.

Most economists chalked up the large gain to holiday workers finally being laid off, and initial lay-off figures should return to a figure near 300,000 in coming weeks.

“It happens at the beginning of every calendar quarter and the beginning of every year, so it’s difficult to seasonally adjust at this time,” Societe Generale senior U.S. economist Brian Jones told the Bloomberg news service. “People are finding work. The labor market is fine.”

The four-week moving average, considered a much more stable gauge of jobless activity, grew to 298,000, a 6,750-claim gain from the prior week’s revised average of 291,250.

This week, we can expect:

  • Wednesday — Housing starts and building permits for December from the Census Bureau.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration.
  • Friday — Existing home sale for December from the National Association of Realtors; leading economic indicators for December from the Conference Board

Posted in Economic Advisor

Economic Advisor: January 14, 2015
January 14, 2015


Last week saw encouraging employment news, with the unemployment rate falling and near-term layoffs dropping as well. Additionally, wholesale inventories outpaced market expectations to a solid degree.


The unemployment rate for December beat expectations by dropping to 5.6 percent, with the population of unemployed Americans falling by 383,000 to 8.7 million people, the Bureau of Labor Statistics reported last week. December’s performance marked the lowest unemployment rate in six and a half years.

The economy added 252,000 jobs in December, with key job sectors helping drive the growth including professional and business services, industry, administrative and waste services. All told, the U.S. economy added 2.95 jobs during 2014, marking the best year for job creation since 1999.

While December’s unemployment rate was encouraging, a key element many analysts say must improve is wages. In that regard, hourly earnings actually declined by 5 cents in December to $24.57. This was a 180-degree turn from November’s gain of 6 cents, but was likely a temporary setback, according to PNC Chief Economist Stuart Hoffman.

“Faster wage growth remains the missing piece of the puzzle, but with the unemployment rate declining further and 21 states raising their minimum wage starting this month, wages should accelerate as 2015 progresses,” Hoffman wrote in a public statement.

Initial Jobless Claims

The good news could be felt on the near-term employment front, as well. Judging by figures released last week by the Employment and Training Administration, it appears that employers decided to hang on to more of their holiday hires than usual.

First-time claims for unemployment benefits filed by the newly unemployed during the week ending Jan. 3 dropped to 294,000, a decline of 4,000 claims from the preceding week’s unrevised level of 298,000, the Administration reported.

That level of claims was “low enough to be consistent with very big payroll gains,” Pantheon Macroeconomics Inc. chief economist Ian Shepherdson noted in a public statement. “If the economy strengthens again in the first half, it could easily dip to new lows.”

The Administration’s four-week moving average — which is considered a more accurate measure of layoffs — notched down to 290,500, a dip of 250 from the prior week’s unrevised average of 290,750.

Wholesale Inventories

Wholesale inventories — a key indicator because it predicts the wholesale market’s expectations of economic growth or contraction — grew 0.8 percent in November to hit  $547.2 billion, solidly outpacing market expectations of 0.3 percent growth, according to figures released last week by the Census Bureau.

Key sectors driving inventory gains were computer, peripheral equipment and software, which grew 2.6 percent; hardware, plumbing and heating equipment, which gained 1.7 percent; farm product raw materials, which shot up 5.7 percent; and drugs and pharmacist sundries, which moved up 2.6 percent.

Merchant wholesaler sales dipped 0.3 percent to $452.2 billion in November, but were up 2.4 percent compared to November 2013. This put November’s inventories-to-sales ratio for wholesalers at 1.21. The November 2013 ratio was 1.16.

This week we can expect:

  • Tuesday — December budget from the Treasury Department.
  • Wednesday — December retail sales and November Business Inventories from the Census Bureau; December import and export prices from the Census Bureau and Bureau of Economic Analysis.
  • Thursday — Initial jobless claims for last week; December producer price index from the Bureau of Labor Statistics.
  • Friday — December consumer price index from the Bureau of Labor Statistics; December industrial production and capacity utilization form the Federal Reserve.

Posted in Economic Advisor

Economic Advisor: January 07, 2015
January 7, 2015


Last week’s slate of economic news was very light due to holiday bureau closures, but there were a couple key announcements that surfaced in the headlines: U.S. manufacturing was still growing, but hit a six-month low, and the pace of construction activity unexpectedly fell.

Construction Spending

The pace of U.S. construction fell further than the market expected, but private construction, and especially residential construction showed improved performance. Construction spending during November dropping to an annual rate of $975 billion, which was 0.3 percent off from October’s revised estimate of $977.7 billion, the Census Bureau reported last week. The market had expected a 0.1 percent gain. That said, compared annually, November’s construction performance was 2.4 percent over November 2013’s estimate of $952.5 billion.

While construction on the whole was down, private construction spending fared positively. Private construction for November hit an annual rate of $697.7 billion, which was 0.3 percent over October’s revised estimate of $695.7 billion. Better yet, residential construction hit an annual rate of $352.7 billion in November, which was 0.9 percent better than October’s revised estimate of $349.6 billion.

The big drop was clearly in non-residential construction, and more specifically in public construction spending, which dropped to $277.3 billion, a whopping 1.7 percent below October’s revised estimate of $282.0 billion.

“November’s drop in nonresidential construction spending ends four consecutive months of spending growth, but represents only a minor dip in the industry’s momentum,” Associated Builders and Contractors Chief Economist Anirban Basu told Contractor Magazine. “… Conditions remain conducive to continued construction spending growth. Both the quantity and quality of job growth continues to improve, which will fuel the ongoing recovery in office-related spending.”


Manufacturing for December lagged behind expectations, with the Institute for Supply Management reporting last week that its index for factory production fell to 55.5 percent, a decrease of 3.2 percentage points from November’s reading of 58.7 percent. This marked a six-month low for the index, but it is important to note that while the index was down, any reading over 50 percent demonstrates growth in manufacturing.

Some other key manufacturing figures for December released by the ISM included the New Orders Index, which dropped 8.7 percentage points to 57.3 percent; the Production Index, which dipped 5.6 points to 58.8 percent; the Employment Index, which grew 1.9 points to 56.8 percent; and raw materials inventories, which dropped 6 points to 45.5 percent. What some analysts said these figures indicated was that manufacturing was waiting on prices to fall, so the drop could be momentary, and could point to pent up growth in the near future.

“Prices aren’t going to be falling forever, so at some point it’s going to make sense for these people to start buying again,” RBS Securities Inc. economist Guy Berger told Bloomberg. “If anything, it suggests we may be back-loading activity into 2015 that would have taken place in December, and that is actually good news.”

This week returns to a normal calendar of economic releases. We can expect:

  • Monday — Car and truck sales for December from the auto manufacturers.
  • Tuesday — November factory orders from the Census Bureau.
  • Wednesday — The November balance of trade from the Census Bureau of the Bureau of Economic Analysis.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; December consumer credit totals from the Federal Reserve.
  • Friday — November wholesale inventories from the Census Bureau; December unemployment rate, payrolls, hourly earnings and average workweek from the Bureau of Labor Statistics.

Posted in Economic Advisor

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