Archive for January, 2013

November New Home Sales

Tuesday, January 22nd, 2013

New home sales continued to improve in November according to the Census Bureau.  The seasonally adjusted annual rate of sales was 377,000 units.  This is an increase of 4.4 percent over October as the previous month’s tally was revised down to 361,000 units from 368,000.  Year-over-year, the indicator has improved by 15.3 percent.

Prices benefited for the month as well.  The median home price improved by 3.6 percent to $246,200.  The average price jumped over 10 percent to $299,700.  The jump in average price was impacted by the composition of the sales.  Fewer homes were sold on the lower end of the pricing spectrum while the number of homes sold in the $500,000-$749,999 category roughly doubled.

Prices are likely being influenced by, among other things, a relatively small inventory.  Seasonally adjusted, there were 149,000 homes for sale. This is slightly more than in October, but with the faster pace of sales, the inventory measured in months fell to 4.7 from 4.9.

Construction jobs were hurt tremendously in the downturn, but this area of the labor market may have better days ahead.  Of the homes sold in November, only 37 percent of them were completed.  Roughly 30 percent of the units sold were not started, with the rest being under construction.  A similar mix is seen in the units for sale at the end of the period.  Only 27.1 percent of the new homes on the market are finished being built.  Along with the new home sales pace gaining momentum, the median number of months a home is for sale has been declining.  It was only 5.3 month in November.  The current inventory turnover is much faster than the 8.8 months pace seen as recently as August 2012.  If the trajectory continues, builders are going to need more hammers swinging.         (by C. Cox)

Beating the Blues

Friday, January 18th, 2013

I reckon it’s only natural to experience a bit of a let-down bluesy feeling as we enter the first month of 2013.  Too many cookies and other seasonal sweets may induce a lethargic sense bordering on sadness.  Endings tend to impart a dour sense of finality to many folks.  Trading the built-up anticipation inherent in planning for gift giving, friendly gatherings, and various seasonal celebrations for a sense of terminality may leave one feeling that something remains missing, something is still lacking.  Or maybe it invokes the subtle whisper of mortality.

Whatever the cause, if it is something from which you suffer, I have good news.  We didn’t reach some successful end; in fact, we have hardly begun!  While I appreciate all the anxiety we each enjoyed leading up to the Fiscal Cliff deadline, there is absolutely no need now to relax.  More—much more—is yet to come.

Consider sequestration, a strange and wonderful term Congress uses to camouflage their mutual inability to accomplish much of true importance.  Resolutions to those portions of the fabled Cliff which fall under that heading were pushed off for a couple of months and won’t come up to their own new mini-cliff until late February.  This will allow the D.C. types substantial time to hoot, holler, howl, and otherwise posture.  That by itself should make for good copy in the evening news.

But wait; there’s more!  Yes, the dreaded Debt Ceiling about which we have been warning lately has now been reached.  Who said nothing has been achieved by our representatives?  Now that we’re there, the political language should be able to surpass its own incredibly vituperative level just seen as December ended.

Here’s a playbook for any casual observer who feels the need to increase their anxiety quotient.  On one side we have an army of spenders who feel the ceiling must be raised or America will fold like a third-world power.  Their mantra is, “You can’t cut your way to prosperity.”  Facing them are the forces of spending cuts who chant, “You can’t borrow your way to fiscal health.”  Naturally, caught between them we find you, dear reader.  So now, sit back and enjoy the show.

November National Activity Index

Thursday, January 17th, 2013

After spending 3 months in negative territory, the Chicago Federal Reserve Bank’s National Activity Index (CFNAI) managed a positive outcome in November.  The reading of 0.1 follows October’s -0.64.  The positive number suggests the economy expanded faster than the normal trend.

Since this indicator can be rather choppy, it is constructive to look at the 3-month moving average in order to gauge the health of the economy.  While the 3-month reading is still negative, it improved from the downwardly revised -0.59 to -0.20 in November.   The 3-month average has been negative for nine consecutive months.   A large part of the improvement was a result of August 2012, the month with the worst reading since the end of the great recession, falling from the 3-month average.

The CFNAI is comprised of 85 individual indicators and provides a broad snapshot of the economy.  Of the 85 components, 46 made negative contributions to the overall number and 39 positively impacted the indicator.  Production made the biggest positive impression on the monthly improvement as industrial output began its recovery from the slowdown caused by Hurricane Sandy.

The economy continues to recover, but as this indicator suggests, it is doing so at a slower than normal pace.  The concern with the previous reading of this indicator is that its 3-month moving average was trending toward a level consistent with recessions.  Currently, the average is still negative, but it has now improved enough to lighten those concerns quite a bit.      (by C. Cox)

November Income and Outlays

Wednesday, January 16th, 2013

Income, spending, and saving improved in November according the Bureau of Economic Analysis.  Personal income grew 0.6 percent and October’s income estimate was increased from flat to up 0.1 percent.  Spending was 0.4 percent higher, and its prior month estimate was revised up to -0.1 percent from -0.2 percent.  The savings rate increased from 3.4 percent in October to 3.6 percent.  Prices remained stable for the period as well.

After adjusting for inflation and taxes, income grew by 0.8 percent.  This “real disposable income” measures the money consumers have left to spend after taxes and inflation are taken into account.  This is the best monthly gain since January 2011.  It follows October’s 0.1 percent loss.  Real disposable income has improved by 2.5 percent year-over-year.

Consumers used the additional income to spend.  The inflation-adjusted measure of consumption grew by 0.6 percent for the month.  The year-over-year measure improved to 2.1 percent from 1.5 percent in October.  This is the best year-over-year growth rate since October 2011.

The personal consumption expenditure price index fell 0.2 percent in November after being up 0.1 percent in October.  The fall was primarily due to a price drop in the energy goods and services category.  Removing food and energy, “core” prices were virtually flat for the month.  Year-over-year, consumer prices have risen 1.4 percent.  Core prices are up 1.5 percent during the same period.

This indicator looks encouraging.  Income, spending, and saving are improving while prices remain steady.  Since the Federal Reserve uses this indicator’s core inflation measure as its gauge of price pressure, the central bank will be able to remain accommodative; the reading of 1.5 percent year-over-year inflation remains within the Fed’s comfort zone which is typically below 2 percent.          (by C. Cox)

November Existing Homes Sales

Tuesday, January 15th, 2013

The National Association of Realtors’ latest data on existing home sales indicates this area of the economy continued to improve in November.  The seasonally adjusted annual rate of sales was 5.04 million units.  The improvement is 5.9 percent higher than in October.  This is the highest rate of sales since November 2009 when the figure was 5.44 million units.

Prices continued to firm with the faster pace of sales.  The median existing home price was $180,600.  This is a 1.1 percent improvement from the month before and a 10.1 percent increase year-over-year.

Shrinking inventories continue to help buttress prices.  The total number of units for sale fell 3.8 percent.  There are currently 2.03 million existing homes listed.  Existing home inventories have not been this low since December 2001.  At the current transaction pace, the stock of homes would be depleted in 4.8 months if no other units were made available for sale.  Measured in months, this is the lowest inventory since September 2005.

For those who qualify for loans, interest rates remain accommodative.  Another record low was hit in November; the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 3.35 percent.

Homes are selling faster than a year ago.  Homes on the market for less than a month represented 32 percent of November’s transactions.  The median time for a home on the market was 70 days.  The median was 98 days last year.  That is a 28.6 percent decrease in time.

Despite our rather cautious outlook on the economy, this is one area that is admittedly improving.  It is difficult to find any flies in the ointment.  The country could use more indicators moving so steadily in this positive direction.      (by C. Cox)

Final Third Quarter GDP

Monday, January 14th, 2013

The Bureau of Economic Analysis’ final tally on third quarter Gross Domestic Product (GDP) was markedly better than the previous two counts.  The original inflation-adjusted annualized GDP figure was 2 percent.  The revised number which uses more complete data was upgraded to 2.7 percent, and the most complete and final figure puts the nation’s real output growth rate at an annualized—and surprisingly robust—3.1 percent.  In other words, the U.S. economy grew 55 percent faster between July and September than initially thought, and the pace more than doubled the second quarter’s 1.3 percent growth rate.

Many components contributed to the uptick.  Most importantly, personal consumption expenditures improved at a faster rate versus the second quarter.  They grew by 1.6 percent compared to 1.5 percent between April and the end of June.  This is a small uptick, but personal consumption is the largest component of our economy.  Real residential fixed investment increased 13.5 percent compared to 8.5 percent in the second quarter.  Government spending increased for the first time since the second quarter 2010.  Exports grew as did business inventories.

The inventory story is difficult to interpret since it may mean companies were unable to sell items as quickly as they anticipated, or it may be seen as companies gearing up for expectations of higher demand in the near future.  Business investment may shed some light on the matter, but unfortunately it does not point to confidence.  Companies decreased their investment in capital equipment by 1.8 percent during the third quarter.

Overall, the third quarter was strong, but it is time to start considering the last quarter of 2012.  The initial glimpse will come at the end of January.  The next data release may help us understand whether or not the threat of a fiscal cliff played a material part in shaping the contours of the economy.      (by C. Cox)

Bowling Bawls

Friday, January 11th, 2013

For an evening’s entertainment when my wife Nancy (aka m’Lady Gaga) was back in Iowa visiting with her sister’s family, they went down to the local bowling alley, taking their three-year-old Kristie.   Deciding to show her daughter how it was done, sister Kathy grabbed a ball in one hand, her daughter by the other, and stepped up to the foul line.  She placed the ball on the floor and was about to teach Kristie how to shove it down the lane when Kristie decided to take control.  Quickly rearing back, before anyone to stop her, she kicked the ball with all her might.  Kristie dropped to the floor, bawling in pain and surprise.  Apparently everyone else who saw it collapsed howling with laughter.  Only the ball was unmoved.

As a three-year-old, Kristie had obviously grasped the basic concept that a large ball could be rolled toward a goal of some sort.  She hadn’t, however, touched a bowling ball before and understood neither its heft nor the basic concept of inertia.  Adults in general are not expected to make this same mistake.  Adults like those folks we elect to serve in government.

When will Congress learn this same lesson?  Currently Washington is embroiled in a philosophical discussion dealing with the effects of their self-engineered “fiscal cliff.”  Simultaneously they are now confronting the debt ceiling issue.  Also self-imposed, this is a limit set on how much our nation should be allowed to borrow over and above our level of income.  For all the fuss surrounding the cliff, it seems to us that this ceiling is significantly more critical to America’s long-term viability.  Proposed solutions are generally accompanied by metaphor likening the issue to a “can that gets kicked down the road,” thereby postponing making any decisions which may prove unpopular.

This is a can that has been kicked down the road way too many times already; 74 to be exact.  We’re told the nation will be bankrupt within two months if it isn’t raised, possibly forcing us into default.  The U.S. is already in the hole by well over $14 trillion and the weight of servicing just the interest due grows heavier every day.  And this is at a time when interest rates are incredibly, abnormally low!  Imagine what will happen when (not if) rates begin to rise.  Unless this issue is resolved very soon, there will inevitably come a time when Congress discovers, much like Kristy did, that kicking such a weighty object will no longer work.  If we allow our representatives to continue adding to the heft of this burden, a moment will arrive when the next kick, no matter how strenuous, cripples us even as the debt continues to grow in place.