Tuesday, March 31, 2015

Home Prices Continued to Rise in January

The 20-City Case-Shiller Composite gained 4.6% year-over-year in January, compared with a 4.3% gain in December. The 10-City Composite gained 4.4% in January, up from 4.3% in December. The National Index recorded a 4.5% gain on an annual basis in January, down from a 4.6% increase in December.

On a monthly basis, the 10-City and 20-City composites were unchanged from the previous month, while the National Index declined 0.1%

Month-over-month, nine cities reported price increases while ten cities posted decreases. Charlotte, Miami and San Diego each gained 0.7% month over month, while San Francisco posted the largest decline with a monthly decrease of 0.9%.

Year-over-year, Denver and Miami posted the highest gains, increasing by 8.4% and 8.3%. Chicago also posted notable gains increasing by 2.5%, up 11 basis points from the previous month. Annually, San Francisco increased by 7.9%, a weaker increase compared to the 9.4% annual growth reported the previous month.

Read the S&P release

Monday, March 30, 2015

Yellen: Fed Funds Rate Hike Will Not Be Predetermined

In a speech at the San Francisco Federal Reserve, Fed Chair Janet Yellen provided insight into the reasoning behind a future interest rate hike, but did not provide additional hints as to when rates will be raised aside from implying that a hike will occur later this year.

Yellen implied that the Fed will go about raising rates differently than in the past, suggesting that the committee will not set off on a predetermined course of incremental tightening that involves “similarly sized rate increases at every meeting,” but will instead be data dependent.

More specifically, Yellen noted several special considerations that will factor into the Fed’s decision to gradually raise rates.
  1. Equilibrium real federal funds rates might not recover as much or as quickly as anticipated, leading to a type of “secular stagnation”, where interest rates would need to stay historically low to keep employment under control and prices stable.
  2. Since the interest rates are already near the zero lower bound, the Fed’s ability to reverse course in the event of a negative market reaction is limited.
Despite the Fed’s perceived cautiousness in raising rates, Yellen noted that moving too slowly to raise rates has its own risks, particularly in causing inflation to rise too quickly due to upward pressure from tight labor markets. Further, prolonged low short-term interest rates could cause an excessive buildup in leverage and erosion in underwriting standards.

Read the Federal Reserve release

Personal Income Increased in February

Personal income increased $58.6 billion, or 0.4%, in February according to the Bureau of Economic Analysis, consistent with January’s revised estimate. Although nominal personal consumption expenditures (PCE) increased $11.8 billion (0.1%), real PCE decreased by 0.1% in February when adjusted for changes in price.

Real disposable personal income (personal income less personal current taxes) increased 0.2%, compared to a 0.9% increase in January.

The price index for PCE increased 0.2% in February, compared with a 0.4% decrease in January. The PCE index excluding food and energy increased 0.1%, consistent with January’s increase.

Private wages and salaries increased $21.9 billion in February, down sharply from a $44.2 billion increase in January, as the goods-producing and manufacturing sectors added little to their payrolls.

Proprietors’ income decreased $7.0 billion for the month compared with an $11.7 billion decrease in January. Rental income increased $3.9 billion, up from $1.8 billion.

The personal savings rate was 5.8%, up from 5.5% the previous month.

Read the BEA release

Friday, March 27, 2015

Consumer Sentiment Fell in March

Consumer sentiment fell in March according the University of Michigan survey, dropping 2.4 points from the previous month.

University of Michigan economist Richard Curtin noted that harsh weather combined with the slight uptick in gas prices contributed to the decline.

Most of the decline in confidence came from low income demographics, whereas middle and upper class households reported confidence gains. Curtin also noted that although interest rates are expected to rise this year, few consumers anticipate altering their purchasing behavior.

The current conditions and future expectations indices declined this month, falling by 1.9 points and 2.7 points, respectively.

Inflationary expectations for the next year increased significantly. Consumers now expect prices to be 3% higher one year from now, up from 2.5% in January.

Fourth Quarter GDP Estimate Remains Unchanged

The third estimate of U.S. Real GDP for the fourth quarter of 2014 increased at a rate of 2.2%, unchanged from last month’s “second” estimate. Personal consumption expenditures contributed 3% to growth, up from 2.8% in the previous estimate.

Rising dollar values and weak oil prices contributed to the decline in net exports, dragging GDP growth by 1.03% compared to a 1.15% drag in the second estimate. Government spending declined by 0.4%, largely due to a reduction in national defense spending which decreased by 12.4% compared to an increase of 16% last quarter.

For the year as a whole, GDP increased by 2.4% reflecting positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, state and local government spending and private inventory investment, partially offset by a decline in federal government spending.

Read the BEA release

Wednesday, March 25, 2015

Durable Goods Orders, Factory Shipments Fell in February

New orders for durable manufactured goods decreased unexpectedly in February, falling 1.4%, according to the U.S. Census Bureau. The decrease was the third over the last four months. Excluding transportation, orders decreased 0.4%. Orders for defense capital goods increased 10%, one of the few notable gains for the month.

January orders were revised down from 2.8% to 2.0%. Excluding transportation, new orders fell by 0.7%.

February shipments of manufactured durable goods decreased 0.2%, following a decrease of 1.4% in January. A 1.1% drop in orders for primary metals led the decrease. Inventories of manufactured durable goods rose 0.3% to the highest level since the index was first published in 1992.

Read the Census Bureau release.

Tuesday, March 24, 2015

New Home Sales Increase to Highest Level Since 2008

Sales of new single-family houses in February were a seasonally adjusted annual rate of 539,000, according to the U.S. Census Bureau and Department of Housing and Urban Development. This is the highest level since February 2008 when 593,000 new home sales were reported. The February rate is 7.8% above the upwardly revised January rate of 500,000, and 24.8% above the year-ago rate of 432,000.

New home sales in two of the four regions increased this month. Sales in the Northeast jumped 152.9% and the South rose 10.1%, whereas the Midwest decreased 12.9% and the West declined 6.0%.

The median sales price of new homes sold in February was $275,500, dropping 4.8% from January. The average price was $341,000, dipping 0.9% from January.

At the end of February, there were an estimated supply of 4.7 months at the current sales rate.

Read the Census report.

Energy Prices Turn Up After Prolonged Decline

The Consumer Price Index rose 0.2% in February on a seasonally adjusted basis, driven by broad-based increases in shelter, energy and food indexes, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the CPI was unchanged before seasonal adjustment.

The energy index rose 1.0% on a monthly basis after a long series of declines as the gasoline index turned up after its sharp decline the previous month. Gasoline reported the largest increase in the energy category, increasing 2.4% from January.

The index for all items less food and energy rose 0.2% from the previous month, and 1.7% over the last 12 months. The food index rose 3.0% from the previous year. These year-over-year increases were offset by an 18.8% decline in the energy index.

Read the Bureau of Labor Statistics report.

Monday, March 23, 2015

Existing Home Sales Improve Slightly

Existing home sales rose 1.2% in February to a seasonally adjusted annual rate of 4.88 million.

The median existing-home price increased 7.5% year-over-year to $202,600 in February, the largest gain since the 8.8% increase in February 2014.

Total housing inventory increased 1.6% in February to 1.89 million homes available for sale, but remained 0.5% below February 2014. There is currently a 4.6-month supply of total existing homes available for sale, consistent with January.

Existing home sales were mixed across the four regions, as month-over-month sales declined 6.5% in the Northeast, remained unchanged in the Midwest, increased 1.9% in the South and jumped 5.7% in the West.

NAR Chief Economist Lawrence Yun noted: “Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,” he said. “Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.”

All-cash sales were 26% of transactions in February, one percentage point lower than in January and 9 percentage points lower than February 2014.

First-time home buyers represent 29% of all buyers, up from 28% in January.

Read the NAR report.

Wednesday, March 18, 2015

Federal Reserve Opens Door to June Rate Increase

The Federal Reserve removed the assurance that it would be “patient” in raising interest rates, opening the door to a possible June increase.

“Just because we removed the word patient from the statement doesn’t mean we are going to be impatient,” stated the Chairwoman, tempering expectations of a swift rise in rates. The Fed lowered its forecast for the Federal Funds rate with the median forecast predicting rates at 0.625% at the end of 2015, down from 1.125% the previous forecast. Yellen noted that the adjustment was due to changes in the economic forecast rather than a change in the Fed’s approach to tightening monetary policy.

The current forecast suggests that a rate increase is likely to take place mid-to-late 2015. Bond market futures are currently predicting 9% odds of an increase at June’s meeting and 42% chance of an increase in September. Chairwoman Yellen stated that an interest rate increase would likely accompany a meeting with a press conference, but noted that the Fed has the ability to add a press conference to a meeting whenever necessary.

The Fed noted that although economic growth has moderated, labor market conditions have improved with strong job gains and lower unemployment. The committee stated that an increase in the federal funds rate is unlikely during the April meeting, but that the rate will increase upon further improved labor market conditions and after inflation appears to be on track for the 2% inflation target.

Read the Fed Release

Tuesday, March 17, 2015

Housing Starts Dropped 17% in February

Housing starts in February dropped to 897,000, 17% below the revised January estimate of 1,081,000, and 3% below 928,000 in February 2014. The severe dip may be due to disruption of construction during the unusually cold late winter, as well usual volatility in multi-family starts. Single family housing starts were at 593,000, 14.9% below the revised January estimate of 697,000.

Although housing starts declined in all four regions, the Northeast saw the largest decline, with starts falling 56.5% from January. The South by contrast, experienced a monthly decline of only -2.5%.

Building permits were at seasonally adjusted annual rate of 1.092 million units, 3% above the revised January rate of 1.060 million and 7.7% below the February 2014 estimate of 1.014 million. Housing completions were estimated at a rate of 850,000, 13.8% lower than the revised January estimate of 986,000 and 1.8% below February 2014.

Read the Census Bureau release.

Monday, March 16, 2015

Industrial Production Inched up in February, January Output Revised Downward

Industrial production increased 0.1% in February. Numbers for January were revised downward from a 0.2% increase to a 0.3% decrease. Total industrial production is now 3.5% higher than a year ago.

The capacity utilization rate for the industrial sector dropped 2 basis points to 78.9% for the month, a rate that is still 1.2% below its long-run average.

Mining output fell by 2.5%, mostly due to drops in coal mining and oil and gas well drilling and servicing. Utilities increased by 7.3% due to especially cold temperatures.

Indexes for consumer goods, defense and space equipment and business supplies reported gains while business equipment, construction supplies and materials reported losses. The increase in the consumer goods index was driven largely by a 7.6% rise in consumer energy products.

Manufacturing output fell by 0.2%, led by a decline in the motor vehicle industry which fell by 3%. The production of non-durable goods rose by 0.2%, but this was due to gains production of petroleum and coal products which offset many of the losses in other sectors.

Read the Federal Reserve release.

Friday, March 13, 2015

Producer Prices Fell in February

Producer prices dropped in February, falling by 0.5% according to the U.S. Bureau of Labor Statistics. This was the eighth consecutive monthly decrease. The decline in final demand prices was primarily due to a 0.5% decrease in the index for final demand services, the largest decline since the inception of the index in December 2009. Prices for final demand goods dropped by 0.4% for the month. On a yearly basis, producer prices dropped 0.6%, turning negative for the first time since the aftermath of the financial crisis.

The fall in final demand services can be partially attributed to a decrease in retail margins for fuels and lubricants, which dropped by 13.4%. Machinery, equipment, parts and supplies wholesaling also fell, while prices for healthcare services such as inpatient care increased.

Food prices fell by 1.6% in February, the third consecutive month of decline and the largest monthly drop in over a year. A large portion of the decline can be traced to the index for fresh and dry vegetables, which dropped by 17.1%.

Read the BLS report.

Thursday, March 12, 2015

Household Net Worth Rose by $1.5 Trillion

Household net worth increased by $1.52 trillion during the fourth quarter of 2014, a 1.9% increase over the third quarter and the largest increase since 2013. The gain was driven by strong market gains. The S&P 500 rose 4.4% during the quarter, contributing to a $752 billion gain in equities. Real estate also experienced dramatic growth with values increasing by $352 billion.

Domestic nonfinancial debt was $41.4 trillion, a 4.7% increase for the year. Household debt increased to $13.5 trillion (2.9%), as consumer credit grew 6%. Mortgage borrowing rose for the second quarter in a row, growing at an annual rate of 0.7%.

Business debt rose at a 7.2% annual rate, largely due to an increase in corporate bonds. The household savings rate remained at 5.0% for the quarter, but 6 basis points higher on the year.

Federal government debt rose 5.4% on the year, while state and local government debt declined by a half percent.

Read the Federal Reserve release.

Retail Sales Fell in February

There were $437.0 billion of retail and food services sales in February (after adjustment for seasonal variation and holiday and trading-day differences but not for price changes), according to the U.S. Census Bureau. This level represented a decrease of 0.6% from the previous month, but a rise of 1.7% from a year earlier.

Sales at gas stations rose 1.5% for the month, but were 23% lower than in February 2014. Retail trade sales were down 0.6% from January, but up 1% from the prior year. Non-store retailers and food services and drinking places were up 8.6% for the month and 7.7% from February 2014.

Core retail sales – excluding automobiles, building materials, and gasoline – have declined at a 0.4% annual rate for the first two months of the year.

Read the Census report.

Tuesday, March 10, 2015

Small Business Optimism Rises in February

The NFIB Small Business Optimism Index rose to 98.0 in February, gaining 0.1 points from last month. Four of the ten indices posted gains, most notably the percent of owners reporting hard-to-fill openings rose to 29%, -reaching a nine year high.

Although the percent of small business owners planning to create jobs dropped 2% from the previous month, 12% still plan to increase employment in the near future and 14% of owners stated that finding qualified labor to fill positions is their top business problem.

Only 3% of businesses reported that financing was their top business problem. Thirty-three percent declared all of their credit needs were met, while an additional 55% stated that they did not want a loan. The report noted that despite the improved optimism and demand for labor, business owners are not more willing to borrow at this time.

Read the NFIB report

Friday, March 6, 2015

Consumer Credit Grew 4.2% (SAAR) in January

Consumer credit increased at a seasonally adjusted annual rate of 4.2% in January to $3.3 trillion. Revolving credit contracted 1.6% ($888 billion) and non-revolving credit increased by 6.3% ($2.4 trillion).

Total outstanding consumer credit increased by $11.6 billion. Total outstanding nonrevolving credit increased by $12.7 billion, while outstanding revolving credit decreased by $1.1 billion

Federal Government holdings of student loans continue to be the largest portion of non-revolving credit, making up 35% of outstanding credit. Finance companies and depository institutions are the secondary holders of non-revolving credit, each holding approximately 25%. Depository institutions continue to be the primary holder of revolving credit, holding 82%.

Read the Federal Reserve release.

U.S Foreign Trade Deficit Narrows Slightly

The U.S. international trade deficit narrowed slightly in January to $41.8 billion, down $3.8 billion from December. Both imports and exports decreased over the period, falling $9.4 and $5.6 billion respectively.

The goods deficit decreased by $3.4 billion to $61.6 billion, while the surplus in services increased $0.5 billion to $19.9 billion.

The fall in goods exported was largely composed of a $2.2 billion decrease in industrial supplies and materials, and a combined $1.1 billion decrease in fuel oil and other petroleum products.

The decrease in imported goods was largely due to a $4.5 billion decrease in the import of supplies and materials, and a $5.2 billion dollar fall in the amount of crude oil and petroleum products.

Since January 2014, the goods and services deficit increased 7.5%. Exports decreased by $3.3 billion (1.7%) and imports decreased $0.4 billion (0.2%).

Read the Census Bureau release.

Economy Added 295,000 Jobs in February, Unemployment down to 5.5%

Total nonfarm payroll employment rose by 295,000 in February. The unemployment rate edged down 0.2 percentage point to 5.5%; The Federal Reserve has placed its full-employment estimate between 5.2% and 5.5%.

The largest gains were in food services (59,000), construction (29,000), health care (24,000) and transportation and warehousing (19,000). Mining employment declined by 9,000 jobs. Net gains have averaged 288,000 over the past three months.

The civilian labor force participation rate remained virtually unchanged, edging down by 0.1 percentage point to 62.8% in February. The rate has held between 62.7% and 62.9% since April 2014.

Average hourly earnings increased by 3 cents to $24.78, following a 12 cent increase in January. Over the preceding 12 months, average hourly earnings rose 2.0%.

The number of long term-term unemployed, those jobless for 27 weeks or more, remained essentially flat at 2.7 million. This group, which accounts for 31.1% of the unemployed, declined by 1.1 million in the past 12 months. The number of involuntary part-time workers, individuals employed part time for economic reasons, was little changed this month at 6.6 million.

Read the BLS release.

Thursday, March 5, 2015

Beige Book: Economic Expansion Continues

Economic activities continued to expand across most regions and sectors according to February edition of the Federal Reserve Beige Book of 2015. Most of the 12 districts reported moderate to modest growth.

Banking conditions were mostly positive across the country with overall loan demand increasing in all districts except Kansas City, where loan demand was mixed. Credit quality has remained largely unchanged or has improved since the prior reporting period. Bankers in most Districts reported no change in their own lending standards.

Consumer spending rose in most regions, and optimism about near-term sales is high. Automobile sales also rose in most Districts. Five districts reported increased demand for trucks and SUV’s. Most of the remaining districts expressed optimism for future auto sales.

Employment levels remained stable or grew across sectors in most Districts. Employers in several districts encountered difficulties in filling a variety of skilled positions.

Growth in manufacturing varied across sectors, but generally increased since the last survey. Outlooks in manufacturing are generally positive, with most regions expecting near-term growth. The report did note however that the New York District was less optimistic than others about their near-term outlook, but did not state why.

Although home sales and prices generally increased, construction activity was lower in some Districts, partly due to poor weather conditions.

Weak agricultural conditions contributed to the slowdown in growth of the Kansas City, and Dallas districts. In addition to a decline in oil and natural gas drilling, persistent drought, a stronger dollar and labor disputes at West Coast ports negatively impacted exports from the regions.

Read the Federal Reserve release.

Wednesday, March 4, 2015

Non-Manufacturing ISM Index Edged Up in February

The Non-Manufacturing ISM Report on Business Index was 56.9 in February, 0.2 percentage points above the previous month. Index readings above 50 indicate expansion in the non-manufacturing economy. February was the 61st consecutive month of economic growth. Fourteen industries reported growth in February, while four industries— Mining; Construction; Other Services; and Arts, Entertainment & Recreation—contracted.

The Business Activity Index was 59.4, 2.1 percentage points slower than the previous month. Respondents cited “Improved economic conditions and seasonal opportunities” as reasons for the continued expansion.

The Employment Index was 56.4, 4.8 percentage points higher than the previous month, as 11 industries reported an increase in employment. The New Orders Index was 56.7, 2.8 percentage points slower than January. Respondents reported the continued growth was driven by “New customers driving new orders.”

The Supplier Deliveries Index was 55.0, a single percentage point higher than the previous month. Nine industries reported slower deliveries. Only the mining industry reported faster deliveries.

Prices paid increased for the third time in 32 months, rising from 45.5 to 49.7. Five industries reported a decline in prices and 8 reported an increase.

Read the ISM release

ADP: Private Sector Added 212,000 Jobs in February

According to the ADP National Employment report, the private sector added 212,000 jobs in February, 38,000 fewer than January, as both goods-producing and services sectors experienced decreased growth compared to the previous month. The February report upwardly revised the January and December headline numbers by 37,000 and 22,000 jobs, respectively.

Small businesses, companies with fewer than 49 employees, added 94,000 jobs, 3,000 fewer than in January. Medium businesses, companies with 50 to 499 employees, added 63,000 jobs, 43,000 fewer than in January. Large businesses, companies with greater than 500 employees, added 56,000 jobs in February, up from 47,000 jobs added in January.

Goods-producing employment rose by 31,000 jobs, a 14,000 job decrease from the previous month, as construction and manufacturing added a combined 34,000 jobs, 13,000 fewer than in January.

The service-providing sector employment rose by 181,000 jobs, down from 206,000 in January. The slower growth in the service sector was primarily due to decreased job growth in trade, transportation and utilities sectors, which added 31,000 jobs, 19,000 jobs fewer than last month’s gains. Professional and business services contributed 34,000 jobs, a decline from the 49,000 job gain in January. Financial activities added 20,000 new jobs, an increase from last month’s 15,000, marking the largest gain in that sector since 2006.

Read the ADP release.

Monday, March 2, 2015

Construction Spending Decreased 1.1% (SAAR) in January

Construction spending decreased 1.1% in January to a seasonally adjusted annual rate (SAAR) of $971.4 billion. Year-over-year construction spending increased 1.8%.

Total private construction declined 0.5% to $697.6 billion (SAAR), yet increased 0.5% from the previous year.

Private residential construction increased 0.6% to $351.7 billion (SAAR), as single family construction grew 0.6% and multi-family construction grew 1.9%.

Non-residential construction decreased 1.6% in January, yet was 4.8% above the year-ago level.

Public construction declined 2.6% from December, yet increased 5.1% from the year-ago level.

Read the Census report.

ISM Manufacturing Index Reports Weak Growth

The ISM manufacturing index decreased 0.6 percentage point to 52.9 in February. Respondents cited concern over the West Coast dock slowdown, which negatively impacts exports and import, as well as increases costs. Index readings above 50 indicate expansion in the manufacturing economy. As of February, the index has been expanding for 26 consecutive months, although the pace has declined. Of the 18 manufacturing industries indexed, 12 reported growth in February.

The New Orders Index declined 0.4 percentage point to 52.5, but the Inventory Index increased 1.5 percentage points to 52.5. The gap between New Orders and Inventories—a proxy for future production—narrowed 1.9 points to zero.

The Employment Index decreased 2.7 percentage points to 51.4. This is the 21st consecutive quarter of growth in employment. Ten of the 18 manufacturing industries indexed reported growth in employment. Four industries reported a decrease: Textile Mills; Computer & Electronic Products; Transportation Equipment; and Chemical Products.

Exports declined 1.0 percentage point to 48.5, contracting after growing for the second consecutive month. Imports decreased 1.5 percentage points to 54.0.

Prices were unchanged at 35.0. This is the fourth month in a row that the price of raw materials is decreasing.

Read the ISM release.

Consistent Personal Income Growth, Decreased Consumption

Personal income increased $50.8 billion, or 0.3%, in January according to the Bureau of Economic Analysis, consistent with the previous month. Personal consumption expenditures (PCE) decreased $18.9 billion, or 0.3%, after a 0.3% decrease in December.

Disposable personal income — personal income less personal current taxes — increased $52.6 billion, or 0.4% in January.

The personal savings rate rose 0.5 percentage points to 5.5%.

The price index for PCE decreased 0.5% in January, compared with a 0.2% decrease in December. The PCE price index, excluding food and energy, increased 0.1%, compared with an increase of less than 0.1% the previous month.

Private wages and salaries increased $39.7 billion in January, compared with an increase of $7.2 billion in December. Goods-producing industries’ payrolls increased $6.6 billion, service-producing industries’ payrolls increased $33.3 billion and government wages and salaries increased $2.5 billion.

Proprietors’ income decreased $12.8 billion, in contrast to an increase of $13.5 billion in December.

Read the BEA release.