Archive for March, 2015

February 2015 New Home Sales

Tuesday, March 31st, 2015

Sales of new houses increased in February according to the Census Bureau.  On a seasonally adjusted, annualized basis, there were 539,000 units sold in the period.  This 7.8 percent surge in sales is after January’s total was revised higher to 500,000 units (originally 481,000).  Not since April and May of 2008 has the level been at or above the half million mark for two consecutive months.

Regional differences were substantial in the period.  Sales in the South grew 10.1 percent.  Midwest transactions dropped 12.9 percent.  There were 6.0 percent fewer home sold in the West as well.  However, the Northeast sales skyrocketed 152.9 percent!  This will undoubtedly be a tough growth rate to match in the next report even with the Patriots’ victory.

Strong sales have put pressure on the nation’s stock of new homes.  Currently, there are just 208,000 new single family homes on the market.  Of those, just 58,000 are completed and 40,000 have not been started being built.  This could bode well for those employed in construction because at the current sales pace, the inventory would be depleted in just 4.7 months.  Homebuilders do not want to run out of supply.

Prices suffered some in the period.  The median home price dropped 4.8 percent to $275,000.00; this is the third monthly fall in as many months for this cost measure.  The average price measure fared somewhat better, dropping 0.9 percent after falling in January as well.

Housing’s healing pattern appears to be continuing.  Both new and existing home sales levels are greater than a year earlier.  Prices have also moved higher in the last 12 months.  It may not be the economic driver it was a few years ago, but the housing segment of America’s output is still constructive.          (by C. Cox)

February 2015 Consumer Price Index

Monday, March 30th, 2015

Prices paid for consumer goods and services moved higher in February 2015 according to the Bureau of Labor Statistics.  The uptick of 0.2 percent was the first increase since October 2014.  However, the year-over-year change remained slightly deflationary, decreasing 0.1 percent.  Looking at the core measure by removing food and energy, the monthly change matched the prior acceleration of 0.2 percent, and its year-over-year tally increased to 1.7 percent from 1.6 percent a month earlier.

Notable changes in various categories led the indicator higher.  After pulling the price index lower for seven consecutive months, energy costs rose 1.0 percent in February compared to collapsing 9.7 percent in January; gasoline prices rose 2.4 percent during the month.  Food prices rose 0.2 percent in the period.  Most of the uptick was from more expensive restaurant bills as food away from home increased 0.3 percent versus 0.1 percent for food at home.  Other consumer products with relatively large increases during February include used vehicles (up 1.0 percent), medical commodities (0.3 percent higher), and shelter (an increase of 0.2 percent).

Inflation does not appear to be accelerating quickly.  Our central bank is targeting a consistent annual price increase of 2.0 percent.  Our economy has fallen short of this goal in the aftermath of the financial collapse.  With the exception of just 10 consecutive months in 2012, year-over-year core CPI has been perpetually below their preferred level, including being under this mark in every month since March 2013.  The uptick of 0.1 percentage points from 1.6 percent to 1.7 percent is the second consecutive increase for this price measure, but it hardly supports an argument for inflation causing the Federal Reserve to hike the overnight interest rate any time soon.     (by C. Cox)

Cooperating Economics

Friday, March 27th, 2015

In the middle of March, the Organization for Economic Co-operation and Development (OECD) produced its most recent Interim Economic Assessment.  While the group has become relatively more optimistic, it is still expecting just moderate growth for world’s output.  The OECD has some constructive things to say about Japan, Europe, the U.S., and India, while it anticipates deceleration in China.

Most of the OECD’s newfound optimism is a result of the group’s expectations for positive outcomes from recent central bank actions in Europe and Japan, and they also feel America’s current expansion has reason to continue as well.  They see the euro area and Japan benefiting from stronger growth rates and point to recent indicators as evidence of this development.  They have upgraded their forecast for 2015 growth in the euro area to 1.4 percent from 0.3 percent in November, and now expect Japan’s growth to hit 1.0 percent this year after predicting 0.2 percent during the same period.  In all, the OECD estimates monetary easing of the past few months has positively affected countries accounting for roughly half of global output.  In addition to central bank measures, the group feels lower oil prices will stimulate economies of countries that are net importers of the fuel, like America.  According to the report, India will become the world’s fastest growing economy, overtaking China.  The economy of the People’s Republic is experiencing a rebalancing, partially away from real estate, which caused the OECD to call for deceleration in the world’s second largest economy.

To say their outlook is optimistic would be an exaggeration.  Like many professional forecasters, the OECD is responding to the marginal changes in the inputs of their models.  Traditionally, easier monetary policies and falling energy prices are good for countries that are not overly tied to energy production.  However, even their upgraded projections continue to demonstrate the global economy is stubbornly improving, hardly cooperative.     (by C. Cox)

February 2015 Chicago Fed National Activity Index

Thursday, March 26th, 2015

Additional evidence of economic deceleration was found in the February iteration of the Chicago National Activity Index (CFNAI).  Not only was the most recent tally negative (-0.11), January’s count was revised from +0.13 to -0.10, and the 3-month moving average fell below zero (-0.08) as well.  This comprehensive indicator does not bode well for first quarter gross domestic product (GDP), due out at the end of April.

Contributions to the indicator were mixed.  Forty-eight of the 85 components made positive offerings in the period; the other 37 negatively influenced the total.  A silver lining emerged as a greater number of the constituents improved (46) than deteriorated (39).  Of the indicators that improved, ten still made a negative contribution to the total.  Production-related indicators contributed -0.07 in February, up from -0.20 a month earlier.  Employment components added 0.11 to the CFNAI, falling from 0.16 in January.  The personal consumption and housing category made the biggest negative impact to the total with a reading of -0.17, down from -0.07 in the prior period.

Monthly CFNAI figures are relatively erratic, so Atlas pays more attention the 3-month moving average.  February is the first time this average has dipped below zero since the same month last year.  A mild descent into negative territory does not mean anything other than the economy is now growing at a pace slightly slower than its recent trend.  In order for something more meaningful to come from this moving average, the reading will need to fall below -0.70 (signaling a recession is nearing) or rise above +0.70 (a red flag for inflation).  At this stage, the indicator is not near these thresholds, so the real takeaway this month is that the economy is neither too hot nor too cold, but describing it as just right does not seem appropriate either.  (by C. Cox)

February 2015 Existing Home Sales

Wednesday, March 25th, 2015

Existing-home sales improved in February according to the National Association of Realtors.  After plummeting 4.9 percent in January, the market managed to make back some of the lost ground, increasing 1.2 percent.  On a seasonally adjusted annualized basis, the pace of sales was 4.88 million units in February versus 4.82 million in the prior period.  Despite a modest uptick in sales, prices grew at the fastest pace in a year.

Regional data was mixed.  Sales in the Northeast dropped 6.5 percent in the period but are still 3.6 percent greater than a year earlier. Midwest sales were unchanged versus January and have climbed 4.9 percent versus February 2014.  Existing-home sales in the South improved by 1.9 percent; this section of the nation has the best year-over-year total at 6.0 percent.  Finally, the West had the best monthly increase of 5.7 percent, and compared to a year earlier, sales are 2.8 percent greater.

Despite slightly higher borrowing costs, price measures made back some of the previous month’s loss.  According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage in February rose slightly to 3.71 percent from 3.67 percent in January; this is the first monthly uptick since September 2014.  Slightly higher rates did not the keep the median price down; it increased 2.5 percent to $202,600.  The average measure increased 1.0 percent to $248,400.

Existing home sales’ most recent peak occurred in July 2013.  Since then, this segment of the economy has been stuck in a range from a transaction volume perspective.  However, prices have been trending higher since February 2012; since the January 2012 bottom in prices, the calendar effect on the costs of existing homes has been strong. In every year since 2012, January has represented the lowest price of the calendar year and June has been the peak.  While we only have two months of data for 2015, thus far, the same pattern could be emerging.  (by C. Cox)

February 2015 Leading Economic Index

Tuesday, March 24th, 2015

America will remain in the virtuous portion of the business cycle according to the Conference Board’s Leading Economic Index (LEI).  Unfortunately, the trend for this indicator has been moderating and is suggesting output is less likely to accelerate in the medium term.  At 121.4, the LEI increased by 0.2 percent for the second month in a row after improving by 0.4 percent in December.

Seven out of the 10 components improved in the period.  Interest rates continued to be the largest contributor of the LEI as the yield difference between 10-year Treasury bonds and the federal funds rate remains relatively large; of the other six positive components, no other single contributor added even half of what the interest rate spread provided the LEI.  Both labor market indicators were weaker in the period as the average workweek for production workers in manufacturing dropped, and initial claims for unemployment rose (a negative for this indicator) for the second consecutive month.  Labor market measures have been generally positive as of late, so these negative developments are moves against the general direction of employment.

Trends in this indicator are decelerating.  On year-over-year basis, the LEI increased by just 5.2 percent in February; this compares to 5.9 percent in January and 6.2 percent in December.  This is far from the end of the world, but it is pointing to further deceleration in the next few quarters even as coincident indicators demonstrate the first quarter will not go down in annals as a barnburner.                     (by C. Cox)

February 2015 Retail Fails

Monday, March 23rd, 2015

Retail sales dropped in February 2015 according to the Census Bureau.  Falling $2.57 billion or 0.6 percent, this is the second consecutive monthly decline.  January’s 0.8 percent drop to start the year was heavily influenced by weaker gasoline receipts caused by falling prices at the pump; however, this latest downtick had more to do with auto sales than anything else.

Weakness was present throughout the retail segment of the economy.  Americans spent 2.6 percent less at auto dealers in the period.  Building material and garden equipment fell 2.3 percent.  Other areas of weakness include health & personal care stores, department store spending, and miscellaneous store retailers.  One area that grabbed Atlas’ attention was the negative sign in food service & drinking places.  This category represents discretionary spending, and we will follow it closely in the months ahead to see if a trend is developing; it is worth watching because eating at restaurants will likely be one of the first areas from which Americans cut back spending if they begin to tighten their purse strings.  However, weather may have played a large part in the weaker pace of retail sales, and if that is the case, there should be a rebound in this indicator in the months ahead as folks thaw out and make their way back into retail shops.

Retail sales are a large piece of our nation’s output, and the recent weakness suggests the first quarter of 2015 will have been slower than the previous measure of gross domestic product (GDP).  This will not be better understood until the end of April when the initial estimate of first quarter 2015 GDP is released.  In the meantime, Atlas sees other signs of economic deceleration (e.g. contracting shipments of durable goods, slowing Leading Economic Index, and weaker international trade) that, when combined with tepid inflation measures, are making it even less likely that the Federal Reserve will be compelled to increase overnight interest rates before the year is over.      (by C. Cox)