Tuesday, December 31, 2013

Home Prices Rose 0.2% in October

According to the Case-Shiller’s 20-city index, existing home prices rose 0.2% in October. However, the pace of growth is slowing, as the housing market stabilizes and the interest rate rises. Gains accelerated from a year ago, with both the 10-city and 20-city index posting 13.6% gains. The 10-city index also grew 0.2% over the month of October.

The details of the report were mixed. For the first time since February, not all regions posted gains from the month prior. Chicago took the largest hit, dropping 0.5% from September, while Las Vegas grew the most at 1.2%. All regions posted gains from year ago levels, with Las Vegas again leading at 27.1% and New York showing the smallest growth from a year ago at 4.9%.

The 20-city index still remains 19.7% below its peak in July of 2006.

Read the Standard and Poor release.

Thursday, December 26, 2013

New Home Sales Dropped 2.1% in November

New home sales declined 2.1% in November, but remain at elevated levels following a massive upward revision the month prior. November’s pace was annualized at 464,000 units, down from the 30,000 jump in October to 474,000. Sales in November are still above expectations and signal that home sales have withstood rising interest rates.

The gains in November were concentrated in the West and Northeast, which grew 31.3% and 15.2% respectively. The Midwest shrank 26.6% and the South declined 9.1%.

The supply of homes shrank to 4.3 months, from 4.5 in October. The tightening supply caused an increase in the median home price, which rose 6.0% in November to $278,800. Home sales are expected to continuing growing in 2014.

Read the Census report.

Monday, December 23, 2013

Consumer Confidence Rebounded in December

According to the University of Michigan’s Consumer Sentiment survey, consumer confidence rebounded in December, following a drop since July that worsened during the partial government shutdown and debt ceiling debates. December’s index was 82.5, which offsets the losses from August through November.

The present conditions portion of the index at 98.6, returned to July’s levels. Future expectations rose to 72.1, an improvement from the previous month, but still below levels from the summer.

Inflationary expectations were mixed, with the 1-year expectation increasing 0.1% to 3.0% and the 5-year expectation declining 0.2% to 2.7%.

Personal Income and Spending Rose in November

After falling the month prior, personal income rebounded in November by 0.2%. Consumption grew a strong 0.5 %. The strong rise in consumption, coupled with higher tax rates, resulted in a lower savings rate of 4.2%, the lowest level since January 2013.

Consumer spending grew 0.5%, led by durable goods, such as cars, grew 1.9%, and wage growth, which improved 0.4%. Non-durable goods dropped 0.4%. Disposable income inched up 0.1% as a 0.8% increase in tax payments dampened growth.

The PCE deflator remained constant and core PCE rose a meager 0.1%. The year-over-year growth of the PCE deflator and core PCE are 0.9% and 1.1% respectively, below the Federal Reserve’s 2.0% target.

Read the BEA release.

Friday, December 20, 2013

Third Quarter Growth Revised Up to 4.1%

Real GDP growth for the third quarter was revised up strongly to 4.1% in the BEA’s final estimate. Growth was revised up from an initial estimate of 2.9%. The upward revision was driven primarily by higher consumption and inventory growth. Growth in the third quarter accelerated notably from the 2.5% second quarter growth, and is the strongest quarterly growth seen since the fourth quarter in 2011.

Consumption remained strong, growing 1.4% in the third quarter following 1.2% growth in the second. The acceleration from the second quarter was due to strong boost in inventories. Inventories contributed 0.4% in the second quarter and 1.7% in the third. Inventories tend to be highly volatile, and the fourth quarter will likely see a drop in growth, negatively impacting GDP. Net exports and government also moved from a drag on GDP to slightly growing.

While fixed investment improved over the previous two estimates for the third quarter, its final reading of 0.9% was below its second quarter growth of 1.0%.

Read the BEA release.

Thursday, December 19, 2013

Existing Home Sales Dropped 4.3% in November

According to the National Association of Realtors, existing home sales declined 4.3% in November, falling to an annual pace of 4.9 million units. The decline is the third consecutive month. November’s pace is 1.2% below year-ago levels, the first year-over-year drop in 29 months.

All four regions reported slower sales for the third consecutive month. The West was hit the hardest, dropping 8.5%, while the South declined the least at 2.4%. The Midwest and Northeast fell 4.1% and 3.0% respectively.

Market supply, while still tight, grew to 5.1 months.

Housing prices declined slightly from the previous month to a median price of $196,300. Existing home prices are still 9.4% above year ago levels. However, the growth rate of the housing market appears to be slowing.

Read the NAR release.

Wednesday, December 18, 2013

Federal Reserve Begins Tapering

The Federal Reserve will begin tapering its asset buying program in January. The announcement came following the Federal Open Market Committee’s (FOMC) December meeting. The FOMC’s press release states that, “Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.” The FOMC is reducing its purchase pace by $10 billion per month.

The rate of the taper and end date are unknown. However, Chairman Bernanke stated in his press conference that it could be in 2014, although it will be data driven. The market accepted the news from the Fed as positive, as the Dow Jones Industrial Average soared over 450 points immediately following the release. However, this may be due excitement over a small taper with an unknown end date.

The Fed cited the moderate economic expansion and improving labor conditions as the reason to begin tapering. The release did note that the unemployment rate remains elevated and while fiscal policy restrained growth in the fall, that pressure may be diminishing. Inflation remains below the committee’s long-run goal and will be monitored during tapering to meet the Committee’s dual mandate.

The Committee had previously noted that the target federal funds rate would remain highly accommodative at near-zero levels until the unemployment rate hit 6.5%. The current release extends the low federal funds rate, saying that, “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.”

In the press conference, Chairman Bernanke said that tight credit wasn’t a current problem facing U.S. markets.

In addition to postponing taper purchases, the FOMC pushed out its forecast for the likely timing of raising the Federal Funds rate. The most recent forecast is more dovish than September’s, with more members forecasting lower rates for 2014, 2015 and 2016.

FOMC Fed Funds Rate Projections December 2013

FOMC Fed Funds Rate Projections September 2013

Read the full FOMC statement below. Read the Federal Reserve's updated projections. Read the Federal Reserve's statement on its purchase pace.    

Housing Starts Jump in November

New residential construction rose sharply in November, surpassing the 1 million unit annual pace with a pace of 1.091 million units. November’s rate is 22.7% above the previous month’s rate. Housing starts are at their highest level since February 2008. Due to the shutdown, November’s report also included new data for September and October as well.

November’s increase was driven by large gains in both single and multi-family housing. Multi-family construction surged 26.8% and single family grew 20.8%.

Housing permit issuance and completions were not as positive. Permit issuance shrank 3.1% in November, solely due to a 10.8% decline in multi-family issuance. The decline in multi-family permit issuance may result in lower multi-family housing starts in future months. Housing completions dropped 0.1%.

Read the Census report.

Tuesday, December 17, 2013

Consumer Prices Remained Stagnant in November

The consumer price index was unchanged in November, following a slight decline the previous month. A decline in gasoline prices depressed the headline number, offsetting the gains in the food index. Consumer prices rose 1.2% from year ago levels, below the 2.0% long term goal of the Federal Reserve.

Core prices grew 0.2% in November, slightly above the growth seen the previous three months. The gains were driven solely by the services industry, which offset losses of the goods price index. The services industry index grew 0.3% while goods shrank 0.1%. Goods prices have dropped for three straight months and are 0.2% below year ago levels.

Energy prices fell for the second consecutive month, dropping1.0% in November. Energy prices are 2.5% below year ago levels. Food prices grew a slight 0.1% in November and 1.2% since November 2012.

Read the BLS report.

Monday, December 16, 2013

Industrial Production Increased in November

Industrial production jumped 1.1% in November, above projections. All three major components increased, with the largest gains in utilities. Industrial production increased 3.2% above year ago levels.

Manufacturing output rose 0.6%, slightly above the prior month’s revised 0.5% gain. Manufacturing is now up 3.7% over the past 6 months. The auto sector continues to heavily contribute to manufacturing gains, which sharply increased 3.4% in November. Excluding motor vehicles, total manufacturing production rose 0.5%.

Mining grew 1.7%, following 1.5% decline the previous month, continuing a volatile trend. The lower temperatures in November caused a 3.9% jump in utilities.

Read the Federal Reserve release.

Friday, December 13, 2013

Producer Prices Fell 0.1% in November

Producer prices shrank for the third consecutive month in November, declining a modest 0.1% from the month prior. Intermediate goods contributed to the decline, largely due to dropping energy prices. Producer prices improved 0.7% from year ago levels.

Prices for finished energy products fell 0.4%, while intermediate energy products declined 1.5%. Crude energy products sharply declined 6.6%. Prices of crude goods dropped 2.6%, following a 0.9% decline the previous month. Finished food goods remained constant, however intermediate food goods declined 0.9%.

Read the BLS report.

Thursday, December 12, 2013

Retail Sales Jumped 0.7% in November

Retail sales grew 0.7% in November, beating expectations. The previous two months were revised up as well. November’s growth was driven by large gains in auto sales and nonstore retailers. Year-over-year growth was the highest in the last four months, up 4.7%.

Nonstore retailers saw strong gains in November, similar to November 2012, rising 2.2% over the previous month, likely a result of the new iPhone 5 introduction. Auto sales improved 1.8%, due mainly to new car sales.

Sales feel the most sharply at gasoline stations, dropping 1.1% over the course of the month. The decline is gas sales is attributed to the lower gasoline prices. Sales also dropped at clothing and accessories stores, unusual in the run up to the holiday shopping season.

Read the Census report.

Wednesday, December 11, 2013

Small Business Optimism Rose Slightly

Small business optimism rose slightly in November by 0.9 points, according to the NFIB. The small increase doesn’t offset the losses from the previous two months, however the index is an improvement from the hit optimism took during the government shutdown and debt ceiling debates.

Financing continues to be the least cited concern for small businesses, with 2% of respondents citing it as the single most important problem. Government requirement and red tape remained in the top spot, increased 1% from 21% to 22%. Taxes also remained in the number two spot, at 21%.

The uncertainty around healthcare caused the cost and availability of insurance to jump from 8% to 11% as the single most cited concern by small businesses. These concerns are preventing businesses from investing and expanding. The percent of owners planning to increase capital spending in the next 3 to 6 months rose 1 point to 24%. While capital spending is at its highest point since early 2008, it’s still well below normal levels.

Job creation plans gained 4 points, reversing the negative growth the month prior. Notably, November’s report posted the highest level of hiring activity since October 2007.

Read the NFIB report.

Monday, December 9, 2013

Household Net Worth Rose by $1.9 Trillion in the Third Quarter

According to the Federal Reserve’s Flow of Funds report, household net worth increased by $1.9 trillion in the third quarter of 2013 to a new record of $77.3 trillion. The gain continues an upward trend since the beginning of 2009 and is $21 trillion above its prerecession peak.

The gains in household net worth were led by rising home prices and increasing stock values. Owners’ equity in real estate increased by $418.2 billion during the quarter. The S&P/Case-Shiller index of home values in 20 cities rose 13.3% in September from the same month in 2012, the most in more than seven years. Increases in home prices allow families to more easily borrow against their home and feel more at ease spending money.

Financial assets increased in value by $1.5 trillion. The Standard & Poor’s 500 index climbed 81.4% between September 10th and December 9th this year. The trend may slow soon once the Federal Reserve begins to taper, likely in December or January. Liabilities also rose for the household sector as families become willing to take on more debt. Household debt increased by an annualized 3.0%, to $13.1 trillion. It is a sign that deleveraging may start to slow. Household savings rate continued its upward trend, reaching 5.0% in the third quarter.

Read the Federal Reserve’s release.

Friday, December 6, 2013

Consumer Credit Grew $18.2 Billion

Consumer credit growth continued to improve in October, with balances rising by $18.2 billion. October’s growth is the strongest since May and was boosted by stronger revolving credit growth.

Although credit growth continues to be driven primarily by the non-revolving sector, that includes auto and student loans, revolving credit saw strong growth last month. Non-revolving credit grew by $13.9 billion in October, down from the previous month’s $16.5 billion. This slight downturn was offset by strengthening revolving credit growth. Revolving credit or credit card lending, grew by $4.3 billion after shrinking by a cumulative $2.9 billion over the previous four months.

The strong revolving credit growth in October makes sense given the trend in personal income and consumer spending released earlier today. As personal income fell and consumption continued to grow in October the savings rate fell as well. As a result consumers seem to be utilizing credit cards again. This is a positive sign for consumption going forward as it shows consumers are confident enough to maintain spending even in the face of slight disruptions in income.

Read the Federal Reserve release.

Personal Income Fell and Spending Rose in October

Personal income unexpectedly fell 0.1% in October due primarily to an anomaly in the data for farm owners. Despite the mitigating factors, this is the first decline in personal income since January, which was also due to unique circumstances. Consumers increased spending 0.3% in October, which, combined with lower income led the savings rate to fall to 4.8%.

Personal income fell in October due primarily to a $22.4 billion (annualized) decline in income for farm proprietors, which follows a strong increase $19.5 billion in September. The swings are due to a payment associated with the settlement of a class-action lawsuit with the U.S. Department of Agriculture. The previous decline, in January, was also due to special circumstances as employers pushed bonuses forward to December due to changes in the tax code.

Absent the one-time event that pulled income lower for October, growth was still weak as wage and salary income were weaker than expected. No component of income rose rapidly in October. Tax payments did rise however, resulting in a 0.2% decline in disposable income.

Despite the poor income growth consumers continued to increase spending by 0.3%. Spending growth was driven by durable goods, which grew by 0.6%. Despite the growth, consumer spending remains weak. October’s reading is just 2.1% above year-ago levels, which is the strongest level this year.

The increased spending coupled with the falling income led the savings rate to fall to 4.8%, offsetting two months of gains. The personal savings rate remains above the 3.6% seen at the beginning of the year.

Read the BEA report.

Unemployment Fell to 7.0% in November

The U.S. labor market continued its steady improvement in November, adding 203,000 jobs. Job creation has held near this pace for the past four months now, following weak growth in July. The increased job growth led the unemployment rate to fall to 7.0%, its lowest level since November 2008.

Job creation continues to be driven by the private sector, which was responsible for 196,000 of the Jobs created last month. The service sector held up much of its strength seen throughout the recovery adding 159,000 jobs in November. The goods-producing sector has now improved steadily for the past four months, adding 44,000 jobs last month. The public sector added just 7,000 jobs in November, swinging from a 14,000 job drag the previous month.

Job creation more than offset a slight increase in the labor force, leading the unemployment rate to drop to 7.0% in November. Labor force participation improved in November, reaching 63.0%. Despite this slight improvement, labor force participation remains near its lowest level since 1979.

The steady job growth and falling unemployment rate will likely give the Federal Reserve policymakers reason to believe that there is a sustainable recovery in labor markets as they look to wind down the Fed’s bond purchasing program.

Read the BLS report.

Thursday, December 5, 2013

U.S Economy Grew 3.6% in 3rd Quarter

Real GDP grew 3.6% in the third quarter of 2013, up from the original estimate of 2.9%. The improvement was due to a massive inventory increase. Growth in the second quarter accelerated notably from the previous quarters this year.

The acceleration in the second quarter was due primarily to strong upward inventory revisions, which was revised from 0.83% to 1.68%. Final sales rose only rose 1.9% in the third quarter compared to 2.1% in the second quarter. This means businesses are stocking their inventories in preparation of the holiday shopping season. The large inventory accumulation this quarter will likely result in much smaller inventory growth in the fourth quarter, providing a drag GDP growth.

Consumption declined from the 1st estimate to 0.96%, and has steadily declined all year. While consistently strong, it is no longer the sole driver of GDP growth. Fixed investment grew from 0.63% in the original estimate to 0.81%, although it’s still weaker than second quarter growth. Service spending growth was weaker during the third quarter, which isn’t surprising given business conservatism in the lead up to the shutdown and debt ceiling debate. State and local spending boosted government spending, while the federal government is unsurprisingly a drag on GDP, and will remain so through the fourth quarter during the shutdown.

Net exports declined from the original estimate, but still remained positive, the first time all year.

Read the BEA release.

Wednesday, December 4, 2013

Fed’s Beige Books Shows Modest to Moderate Expansion

The Federal Reserve’s Beige Book indicated that economic activity expanded at a modest to moderate pace across most of the country. Philadelphia, Chicago, Kansas City, San Francisco and Boston reported slower growth. The report, which covered early October through mid-November, indicated that manufacturing activity continued to expand in most districts.

Seven of the Federal Reserve districts reported economic activity grew at a "moderate" pace and four districts reported that improvements were "modest." Boston reported that economic activity continued to “expand.”

"Manufacturing activity continued to expand in most Districts, with gains noted in the motor-vehicle and high-technology industries." Moreover, retailers were cautiously optimistic heading into the holiday shopping season.

Hiring showed a modest increase or was unchanged across Districts. The report noted firms’ difficulty with finding qualified workers, especially for high-skilled positions. Contacts in many Districts voiced concern about future cost increases attributable to the Affordable Care Act and other types of federal regulation.

Overall, there was an improvement in loan demand across the districts, with some bankers noting an easing of lending standards.

Read the full Federal Reserve report.

New Home Sales Jumped 25.4% in October

New home sales jumped 25.4% in October to an annual pace of 444,000 units in October. However, September’s pace was the worst all year and the increase comes from depressed levels. Sales in October returned to a similar pace seen during the first quarter of 2013. The rise in new homes sales in October can be attributed to the strengthening economy and relatively low mortgage rates. As job growth further accelerates, new homes sales will continue to rise.

The gains in October were across the board, with all four regions posting double digit percent increases. The Midwest led at 34.0%, with the West coming in last at 15.2%. The South and Northeast grew 28.2% and 19.2% respectively.

As home sales picked up over the month, the supply of homes shrank from 6.4 months in September to 4.9 in October.

The median price of homes has declined since April. The last month recorded, August, had a median price of $253,200.

Read the Census report.

ISM Nonmanufacturing Index Dropped in November

The ISM nonmanufacturing index dropped in November to 53.9. November’s report is the weakest level since June. The service sector as a whole still performed well, as any reading above 50 indicates industry expansion. The recent volatility of the headline index is due primarily to swings in business confidence.

Details of the report are mixed. Business output dropped 4.2 points to 55.5. The employment index also decreased, dropping 3.7 points to 52.5. New orders lost 0.4 points and backlogged orders dropped `1.0 points to 49.0, below the expansionary threshold.

Exports improved 5.0 points to 58.0. This helps the nominal trade deficit, and GDP.

Read the ISM release.

Trade Deficit Dropped to $40.6 Billion

The U.S. trade deficit shrank 6% to $40.6 billion in October. The decrease in the deficit was due solely to an increase in exports. October’s report also slightly revised up August and September’s headline numbers.

Exports increased by 1.8% to $192.7 billion. The petroleum deficit decreased by $0.3 billion and the nonpetroleum deficit narrowed to $60.2 billion. The service industry surplus grew by $0.2 billion.

Imports also increased in October, but not enough to offset the gains in exports. Imports grew 0.4% to $233.3 billion. The rise in imports was driven by an increase in consumer goods imports.

Octobers report point to increasing demand for U.S. products abroad, suggesting a strengthening global economy.

The real goods deficit, which is important to calculate GDP, decreased to $48.3 billion from $51.4 billion in October.

Read the Census report.

ADP Employment Beats Expectations in November

According to the ADP’s National Employment Report, the private sector added 215,000 jobs in November. The report is above expectations, and includes positive revisions to September and October as well.

November’s growth was broad. Goods producers added 40,000 jobs, up from 29,000 the previous month. Manufacturing added 18,000 jobs, the largest increase in over a year and a half. The service sector increased 176,000 in November, the largest increase in a year.

Read the ADP release.

Monday, December 2, 2013

ISM Manufacturing Improved in November

The ISM’s manufacturing index performed better than expected in November, rising 0.9 points to 57.3 against expectations for a substantial decline. The index has now improved for six consecutive quarters and is at its highest level since April 2011. Any index reading above 50 indicates industry expansion. The details of October’s report were strong, with gains in production, new orders and employment.

New orders rose 3 points in November, reaching 63.6 and has now risen in five of the past six months. As a result of this improvement and inventories declining, the gap between new orders and inventories – a proxy for future production – grew 5 points to 13.1.

Employment was strong in November as well, rising 3.3 points to 56.5, its highest since April last year.

Read the ISM report.