July business inventories up 0.6 percent from June and 4.3 percent year-on-year

July business inventories increased 0.6 percent after edging up 0.1 percent in June and boosted by a strong increase in the stock of motor vehicles.  Year-on-year inventories rose 4.3 percent.

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August retail sales edged up 0.1 percent as shoppers took a break

Retail sales edged up 0.1 percent in August, the smallest rise since February.   Still, data for July was revised higher to show sales rising 0.7 percent instead of the previously reported 0.5 percent gain.

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First quarter 2018 GDP growth revised down to 2.0 percent in third and final estimate

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2018 according to the "third" estimate released by the Bureau of Economic Analysis, down from 2.2 percent in the second estimate. The GDP estimate released today is based on more complete source data. In the fourth quarter, real GDP increased 2.9 percent.

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Business inflation expectations dip to 2.0 percent in May update

Firms' inflation expectations decreased from 2.3 to 2.0 percent over the year ahead. Sales levels went unchanged, remaining "above normal," on average. Profit margins improved slightly, and year-over-year unit costs decreased to 1.9 percent, on average.

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First quarter 2018 GDP growth of 2.3 percent in first of three estimates

Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the first quarter of 2018 according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.9 percent.  The "second" estimate for the first quarter, based on more complete data, will be released on May 30, 2018.

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March Chicago Fed National Activity index fell due to slower growth

Led by slower growth in production- and employment-related indicators, the Chicago Fed National Activity Index (CFNAI) declined to +0.10 in March from +0.98 in February. The index's three-month moving average, CFNAI-MA3, decreased to +0.27 in March from +0.31 in February.

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GDPNow: 4th Quarter growth estimate 2.7 percent as of 1/5/18

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2017 is 2.7 percent on January 5, down from 3.2 percent on January 3. The forecasts of real consumer spending growth and real private fixed-investment growth decreased from 3.2 percent and 8.9 percent, respectively, to 3.0 percent and 7.6 percent, respectively, after this morning's employment report from the U.S. Bureau of Labor Statistics and this morning's Non-Manufacturing ISM Report On Business from the Institute for Supply Management.

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November construction spending rose 0.8 percent to all-time high of $1.257 trillion

November construction spending rose 0.8 percent to an all-time high annual rate of $1.257 trillion, with private residential projects soaring 1.0 percent to the highest level since February 2007.  This increase was in line with a recent jump in homebuilding and supports the view that housing would boost economic growth in the fourth quarter after being a drag to gross domestic product since the April-June period.

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September business inventories flat but sales rose

Business inventories were flat in September followed a downwardly revised 0.6 percent increase in August. Inventories are a key component of gross domestic product and were previously reported to have risen 0.7 percent in August.  Sales were up 1.4 percent from August and 6.4 percent year-on-year.

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Third quarter GDP rose by 3.0 percent in first estimate

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the third quarter of

2017 according to the "advance" estimate released by the Bureau of Economic Analysis. In the

second quarter, real GDP increased 3.1 percent.

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Second quarter GDP growth rises to 3.0 percent in second estimate

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2017 according to the "second" estimate released by the Bureau of Economic Analysis. The second GDP estimate is based on more complete source data than were available for the "advance" estimate issued last month.  In the advance estimate, the increase in real GDP was 2.6 percent.

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2Q 2017 GDP grew by 2.6 percent in advance estimate

Real gross domestic product increased at an annual rate of 2.6 percent in the second quarter of 2017 according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2 percent.

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First Quarter 2017 Economic Update: Some Mixed Signals but Real Estate Remains Strong

This seems to be an odd time for the U.S. economy, which has remained somewhat sluggish since the beginning of the year. This compares to a rise of nearly eight percent in the S&P 500 since January 1st and a seller’s market for housing in which there simply isn’t enough inventory to satiate several years of pent-up demand.

Meanwhile, both business and consumer confidence – which have been at record levels lately due to promised changes in our byzantine tax code and reductions in business regulations – are starting to slightly wane due to a political system still mostly stuck in neutral.

GDP growth, which averaged just 1.6 percent in 2016 --- the lowest since 2011 – fell further to an initial estimate of 0.7 percent during the first quarter of 2017, due largely to consumers, businesses and state and local governments tightening their spending. However, not only is it likely that this estimate will rise with the second and third iterations, but, as of mid-May, analysts are forecasting growth in the second quarter at 3.6 percent as investments in fixed assets rebound. Moreover, the Federal Reserve’s Beige Book showed residential construction growth accelerating through the end of March as non-residential construction remained strong.

Job growth, which rebounded by 211,000 in April, started out very strong in January and February – ranging from 216,000 to 232,000 -- before dipping sharply to just 79,000 in March. However, given April’s official unemployment rate dipping to 4.4 percent – a 10-year low – March’s performance is widely being viewed as a temporary dip due to poor mid-month weather, fewer construction jobs being added, and a dip in retail employment as that sector continues to battle against online competitors.

In terms of inflation, while the Consumer Price Index (less food and energy) dipped 0.1 percent in March, it has still risen by 2.0 percent over the past year, or even with the target set by the Federal Reserve. The Producer Price Index reported similar trends, dipping 0.1 percent in March but up 2.3 percent over the past 12 months.

Not surprisingly, due to this somewhat murky collection of jobs and inflation data, in its most recent May meeting the Fed delayed raising interest rates until the labor market has stabilized further and inflation needs some more taming.

If there is one area which is not murky, it is confidence. The University of Michigan’s Consumer Sentiment Survey has been on a high plateau since President Trump’s election, settling at around 97 in March and April. Nonetheless, a new trend in the survey has revealed stark differences based on political beliefs, with optimists in one corner and pessimists in the other, especially in terms of expectations for household incomes, inflation and unemployment. These partisan extremes can in turn cause instability and impact consumer spending.

Looking specifically at the building industry, builder confidence has remained at well over 60 since last September, and has averaged 68 since the beginning of 2017. In tandem with this confidence, construction spending rose for five straight months before slipping 0.2 percent in March. Although housing starts dipped 6.8 percent in March, they were still up over nine percent year-on-year. And, while March building permits rose a moderate 3.6 percent from February, they’re up by a robust 17 percent over the past year.

Similarly, sales of new single-family homes rose by 5.8 percent in March to an annual rate of 621,000 units, or a year-on-year increase of nearly 16 percent. Median new home sales prices rose 1.2 percent year-on-year to $315,000, but are still down from last year’s peak of $332,700 in December. At current sales rates, existing inventory would take 5.2 months to sell versus 5.5 months a year ago.

For existing homes, sales rose 4.4 percent in March to an annual rate of 5.7 million, which is also up nearly six percent from a year ago and marked the strongest month of sales since February of 2007. Median existing home prices rose close to seven percent year-on-year to $236,400, for the 61^st consecutive month of year-over-year increases. Although September inventory rose moderately to over 1.8 million homes to a still-brief timeline of just 3.8 months, it has fallen year-over-year for 22 consecutive months.

Looking ahead to 2017 versus 2016, the NAHB is projecting annual single-family starts to rise by 9.0 percent and multi-family starts to decline by 1.6 percent.In addition, look for a rise of 12.1 percent for new single-family homes to 626,000, and existing homes sales to increase 3.2 percent to 4.98 million.

December column for Builder & Developer now posted online

My column for the December 2016 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "2016 in Review:  Continued Recovery from The Great Recession," I reviewed the current state of the U.S. economy and what we can expect in 2017.

An excerpt:

U.S. GDP—which had hovered closer to 1.0 percent during the previous three quarters—surged to 2.9 percent in the third quarter, due mostly to rising inventory of goods, higher exports, and more federal government spending.

Job growth, which rose by 161,000 in October, has averaged 181,000 per month throughout 2016. Although this is down 21 percent from 2015’s average level, it is still more than enough to keep up with population growth and continue putting downward pressure on the official unemployment rate.

To read the entire column, click here.

To read the entire December 2016 issue in digital format, click here.

Economic Update: Overall Improvement since the First Quarter of 2016

In its July monthly meeting, the Federal Reserve Open Market Committee – which decides on interest rate policy – left the door open to whether or not we’ll see another rate hike in 2016. The good news is that the expected impacts from Brexit have been largely subdued.  In addition, the economy seems to be on a more normal path, with both June and July showing monthly job growth of 255,000 to 287,000, and an official unemployment rate of 4.9 percent.

GDP, which was just 0.8 percent in the first quarter of the year, was initially reported to have risen to 1.2 percent by the second quarter.  Moreover, in mid-August, the Federal Reserve Bank of Atlanta had estimated third-quarter GDP growth at 3.6 percent, and boosted its forecast for residential investment growth from 0.4 to 2.4 percent.

Inflation is also stable, with the Consumer Price Index flat in July but rising by just 0.8 percent over the previous 12 months.  However, when subtracting out the more volatile indicators for food and energy, prices have risen by 2.2 percent over the previous year.  With an annual inflation target of 2.0 percent, should job growth reports remain positive in the coming months, then the Federal Reserve may hike interest rates before the end of 2016. Still, not all sectors of the economy are feeling the inflation pinch, with the Producer Price Index falling 0.4 percent in July and still down 0.2 percent for the previous 12 months, which is also why a rate hike is not a given.

For now, consumers remain cautious, with The Conference Board’s Consumer Confidence holding steady at just over 97 on a 100-point scale in July after rising in June.  This latest survey suggests that although the economy will continue expanding at a moderate pace, attitudes regarding the job market and personal incomes remain cautiously optimistic.

Builder confidence is also positive, rising by two points to 60 in August, in which anything over 50 is positive.  The index measuring current sales rose two points to 65, while the index for sales expectations over the next six months rose one point to 67.

In the commercial real estate sector, CoStar’s value-weighted U.S. Composite Index, which focuses on the sales prices of higher-quality assets, advanced by 3.3 percent during the second quarter of 2016, while the equal-weighted U.S. Composite Index, which includes more sales of smaller properties, rose 2.1 percent. While the office, industrial and retail indices all rose by 1.9 percent and the multi-family index increased by a close 1.8 percent, by far the most improved sector was hospitality, rising 4.5 percent to within one percent of its former peak.

Looking closer at housing, sales of new single-family homes rose for the fifth straight month in July to surpass 650,000 annual units, for a notable jump of over 31 percent from July 2015 and reaching the highest pace of new home sales since October 2007. In addition, at this sales rate, existing inventory would take just 4.3 months to sell, versus 5.2 months a year earlier, and falling to the lowest inventory level since June 2013. For all of 2016, the NAHB is forecasting single-family home starts to rise by about 10 percent, as those in the multi-family sector level off.  Nonetheless, future residential growth will continue to be hampered by shortages of labor and lots and higher regulatory costs.

In the existing home market, after four consecutive months of increases, July sales not only tumbled by 3.2 percent from June, but were also down 1.6 percent from the same month of 2015.  NAR is blaming this on a lack of affordably priced inventory, especially for starter condominium homes. As proof of this, the Wells Fargo Home Opportunity Index fell to 62.0 percent in the second quarter of 2016, the lowest rate since the third quarter of 2014. Over the last year, inventory levels have fallen by 5.8 percent and have declined year-over-year for the last fourteen months.  Consequently, with some buyers priced out of the market even at low interest rates, overall inventory levels would take 4.7 months to sell, up from 4.5 months in June.

Of course this demand for new supply is certainly good news for builders!  Although July housing starts were up 5.6 percent year-on-year, building permits inched up only 0.9 percent for the same time period. Yet given the challenges facing the industry including regulations, labor shortages and the difficulty finding affordably priced land, lack of available housing supply may be with us for some time.

Second quarter 2016 GDP rose at 1.2 percent in advance estimate

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent.

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source. The "second" estimate for the second quarter, based on more complete data, will be released on August 26, 2016.

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BuilderBytes' MetroIntelligence Economic Update for 6/30/16

Please click here to see the edition of BuilderBytes for 6/30/16 on the Web.

In this issue of the MetroIntelligence Economic Update, we covered the following indicators:

• Pending home sales dipped in May year-on-year for the first time in almost two years
• Case-Shiller Index rose 5.0 percent year-on-year and 1.0 percent from March
• First quarter GDP growth revised up to 1.1 percent in third and final estimate
• Consumer sentiment dips in June, but no recession is anticipated
• Durable goods orders fell sharply in May, mostly due to lower defense aircraft demand

Want to advertise in this three-times-per-week newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

First quarter GDP growth estimate rose to 0.8 percent in second estimate

Real gross domestic product increased at an annual rate of 0.8 percent in the first quarter of 2016, according to the “second” estimate. In the fourth quarter, real GDP increased 1.4 percent.

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First quarter 2016 GDP growth rate slowed to 0.5 percent in advance estimate

Real gross domestic product increased at an annual rate of 0.5 percent in the first quarter of 2016, according to the “advance” estimate. In the fourth quarter, real GDP increased 1.4 percent.

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July column for Builder & Developer magazine now online

My column for the July 2015 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Housing Market Continues to Gain Strength," I covered recent updates for both the overall U.S. economy as well as the housing market.

An excerpt:

Although the disappointing first quarter of 2015 initially showed U.S. GDP contracting by 0.7 percent, in the third and final estimate—which includes more accurate information from various reporting agencies—the contraction was closer to 0.2 percent... 

Even better, it’s not like U.S. consumers are showing concern over this temporary swoon, and during the first half of this year have actually shown the largest and most sustained increase in economic optimism in over a decade. Even more encouraging to note is that this optimism is shared by the top, middle and bottom third of all incomes. Consequently, look for consumer spending—which powers about 70 percent of the U.S. economy—to grow about three percent this year...

To read the entire column, click here.

To read the entire July 2015 issue in digital format, click here.