October Housing Starts and Permits

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: October Housing Starts and Permits

KEY DATA: Starts: +3.6%; 1-Family: -0.2%; Permits: -2.7%; 1-Family: +2.2%

IN A NUTSHELL: “Housing is taking its place at the head of the economic parade as the recovery is clearly accelerating.”

WHAT IT MEANS: Another housing number, another sign that the sector that started the downslide is now becoming the sector that leads the recovery. In October, housing starts rose to their highest level since July 2008 and that happened despite storm of the century Sandy. Over the year, starts are up over 40% with an increase of 23% in the last three months alone. This might raise some questions about the sustainability of the gains, but I don’t think developers have gotten too much ahead of themselves. Housing permits have risen at a faster pace over the last three months than starts so the October level, though probably elevated, doesn’t look to be way out of hand. Most of the decline in permits was in the volatile multi-family component so I am not overly worried. After a surge in single-family construction in September, builders caught their breath. That the gains were essentially sustained is really good news. Meanwhile, multi-family construction keeps getting stronger and I expect that to continue. The number of home currently under construction rose solidly as well and that points to more hiring.

MARKETS AND FED POLICY IMPLICATIONS: This was a strong report that follows yesterday’s robust existing home sale, home price and builders’ confidence numbers. All this went on despite the negative effects of Sandy so it says a lot about the housing market. And once the rebuilding from Sandy takes place, the housing data could become a lot stronger. This sector has made the turn and it is adding to growth. Thus, one of the two beasts that ate the economy has been tamed. Now if we can get credit more readily we could see the economy really take off. That assumes, of course, that the fiscal cliff risk is avoided. With all the pressure building on Congress and the president to make a real deal, the likelihood of compromise has increased sharply. Really, the election didn’t change anything? Right. It appears to have changed everything. Democrats are talking spending cuts, which is another way of saying entitlement spending has to slow. Meanwhile, Republicans are talking revenue increases, which is another way of saying I will raise your taxes but not tell you I am doing that. Wow, elections do have consequences. With housing strong and vehicle sales likely to rebound as people replace Sandy-destroyed autos, the economy is on the rise. As I have said before, the only thing we have to fear is Washington itself.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com

# # #

September Housing Starts and Permits

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff, President and Chief Economist

INDICATOR: September Housing Starts and Permits
KEY DATA:Starts: up 15.0%; Permits: up 11.6%

IN A NUTSHELL: “Any doubts about the housing market coming back should be erased with the strong improvement in construction.”

WHAT IT MEANS: The weak have indeed taken the leadership position. Housing, the usual engine of recovery had been the little train that couldn’t. Now it appears to be the big train coming down the tracks. Housing starts soared in September to the highest level in over four years. This occurred despite a slowdown in the Northeast. In the rest of the nation, construction soared. And this is not the end of the boom. Over the past three months, permit requests have been running about 50,000 a month higher than starts and builders are not laying out the cash for nothing. Indeed, the number of units permitted but not started has been rising lately and I suspect builders will try to cut into that going forward. Look for housing starts to continue to filter upward. I say “filter” because as with all the data, starts and permits are volatile and when you get a huge rise one month, you frequently get a pull back the next. But I have little doubt the trend is up.

MARKETS AND FED POLICY IMPLICATIONS: This is a great report that is either another example of “those Chicago guys” fixing the data or a true measure of the condition of the housing market. Given that homebuilders’ confidence is continuing to rise on the basis of improving demand, I think you can trust that the improving housing numbers are real. Indeed, construction might have been stronger if credit was more readily available. That was a major complaint of developers and the biggest reason their optimism didn’t increase even further. The ridiculous conspiracy discussion is taking away from the simple fact that the recovery is shifting gears: Consumers are spending on big and little ticket items, manufacturers are beginning to ramp production back up, the housing market is on the rise and earnings are solid. The only outlier is job creation and there is a good reason that is lagging: Congress. The improving housing sector is likely to add significantly to third quarter growth so look for estimates to be revised upward. I have been way out on a very thin limb as my forecast for the second half of this year is well above most other economists. I still could be totally wrong but it does look like third quarter growth could be between 2.5% and 3% with only a widening trade deficit keeping the expansion from being even stronger. That report will be out on Friday, October 26th and it should provide a good picture of where we are right now. As for the markets, if investors really start believing that the economy has turned the corner, it should buoy confidence in the equity markets and raise real questions about how much more the Fed can push down rates. A stronger economy, especially in housing, reduces the expected length of time of QE Infinity and raises inflation expectations. The Fed could be pushing against the markets and that would make its job of reducing longer-term rates a whole lot more difficult.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com

# # #

July Case-Shiller Home Price Index

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: July Case-Shiller Home Price Index

KEY DATA: Case-Shiller 20 City: +0.4%; 7 ’11-7 ’12: +1.2%/FHFA: +0.2%; 7 ’11-7 ’12: +3.7%

IN A NUTSHELL: “The rise in home prices across the nation reinforces the view that housing is now leading rather than restraining the economy.”

WHAT IT MEANS: The housing market is going from worst to first. That is a lot better than my Phillies who have gone in the opposite direction this season, but don’t get me started on that. Anyway, we have seen home construction and new home sales soar by twenty percent this year while existing housing demand is up by over seven percent. All this increase in activity is leading a rebound in housing prices. The July S&P/Case-Shiller index is confirming that the price increases are broadly based. For the third month in a row, every metropolitan area posted a monthly rise and in July, fifteen of the twenty regions showed a year-over-year rise. A similar monthly increase was seen in the Federal Housing Finance Agency Index and the increase over the year was a little larger. In this report, six of the nine regions posted monthly gains while seven of the nine were up over the year. These two indices joined the National Association of Realtors price measure which also showed that prices are moving upward.

MARKETS AND FED POLICY IMPLICATIONS: Despite issues with appraisals, lending standards and a lack of equity, housing is coming back. No matter what measure you use, prices are rising. The market is six years past its peak so I guess we can say that it is about time. But you don’t turnaround a sector that bubbled and collapsed very quickly. Remember, we are still forty percent below the NASDAQ high hit during the dot.com bubble and that was hit over twelve years ago. But the recovery is under way and that bodes well for future economic growth as housing supports lots of jobs and generates major increases in income. With the Fed intent on getting mortgage rates down a lot more, the outlook for housing is about as good as you can get given the hurdles it faces. Still, this is a slow process and as levels rise, percentage changes will moderate. Regardless, investors should take the housing numbers to heart and realize that the economy is hardly as weak as some believe or argue.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com

# # #

July Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: July Existing Home Sales

KEY DATA: Sales: Up 2.3%; 1-Family: Up 2.1%; Condos: Up 4.3%; Median Prices (Year-over-Year): Up 9.4%

IN A NUTSHELL: “With sales and prices rising it is clear that the housing recovery remains on track.”

WHAT IT MEANS: The housing recovery remains intact. The National Association of Realtors reported that housing sales rose in July. Granted, the gain was a little bit less than hoped for and we are still not back to the levels reached earlier in the spring, but up is still good. Modest increases were reported in the South and West but a sharper rise occurred in the Northeast. The problem appears to be in the West where demand was flat. Inventories of distressed homes there are limited and that may be slowing the market down. Indeed, there was a nearly 25% rise in prices in the West over the year and that may have been due more to the dearth of investor properties than a rise in prices. That would skew the purchases more toward non-distressed homes causing the price indices to rise. Of course, a surfeit of distressed homes artificially lowered prices so this may just be some pay back. In comparison, median prices rose between 3.5% and 6.6% in the other regions. Those gains, though, make it clear that home prices are now increasing not falling, a warning to fence-sitting home buyers. Mortgage applications for new purchases were up last week, though those data do bounce around a lot.

MARKETS AND FED POLICY IMPLICATIONS: Progress may be slow, but it is occurring nonetheless and the recovery in the housing market should help future growth. It isn’t just new construction where housing powers economic activity. Within about six to nine months after a gain in home sales retailers start to see rising demand for housing-related products. People buying new or existing units personalize them and that means buying everything from new furniture to window treatments to landscaping. The increasing existing home sales should start leading to more housing-related retail sales though I suspect the lag between the two may be a little longer in this cycle. The Fed is intent on keeping mortgage rates low and that is a help. But a small rise in mortgage rates, when coupled with the rising prices, could help even more as potential buyers are forced to make decisions before their monthly costs get away from them. This is a report that is not strong enough to change anyone’s mind about the state of the economy: It is growing but not rapidly. However, the housing sector has been a key factor in this growth lately and reports like this indicate that should continue.

Note from Christopher J. Brown, CEO:

I feel the market will continue to make great strides. There are five GOOD reasons I see the real estate market making a big comeback:

1) Stock market will suffer losses due to the European debt crisis/situation and China’s reduction in growth;
2) Municipal Bonds will become unattractive as local, county, state and federal governments fail to cut costs and raise taxes;
3) Residential Mortgage-Backed Securities are making a big comeback and offering 7% returns; this will fuel the lenders with new capital and offer better mortgage programs to bring in more buyers;
4) Investors will have nowhere to go but to buy inexpensive houses with low interest rate mortgages to provide a safeguard against tax increases;
5) Employment will increase as the market picks up, bringing in upward mobility and first-time homebuyers.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com

# # #

July Housing Starts and Permits/Unemployment Claims

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: July Housing Starts and Permits/Unemployment Claims

KEY DATA: Starts: -1.1%; Permits: +6.8%/Unemployment Claims: 366,000 (up 2,000)

IN A NUTSHELL: “The housing market is continuing to heal and should be a major part of growth in the quarters ahead.”

WHAT IT MEANS: The housing market is continuing its comeback. Yes, there was a small drop in the number of homes started in July but that does not worry me at all. These data do bounce around and the total number of houses under construction continues to rise. Critically, given the strong increase in permits, the likelihood is that builders will be digging a lot more homes in the months to come. Developers are taking out permits only if they expect to put the shovel into the ground in the immediate future. They are not doing a whole lot of speculation. As for the new construction activity, there was a decline in single-family construction that was almost offset by a jump in multi-family activity. With permit requests for single-family houses rising sharply in July, look for a rebound in this segment of the market. Rising rents and the difficulties in buying homes makes it clear that the multi-family market will be strong for a long time. Regionally, construction picked up was the Midwest but the rest of the nation posted modest to moderate declines. There was one warning sing in the data: The number of homes completed is increasing and sales will have to pick up to keep inventories from growing.

In a separate report, weekly unemployment claims edged up. However, the rise was minimal and much more importantly, the level is consistent with job gains of at least 150,000 to 175,000. We should also see the unemployment rate start declining.

MARKETS AND FED POLICY IMPLICATIONS: This was another good day for economic data as the starts and claims numbers point to improvement in housing and the labor market. Housing is now adding to growth and it looks like it will continue to do that going forward. Of course, we still have a long way to go before the sector gets back to normal as starts need to double before construction is anywhere near what it should be. But that also means there is a lot of growth that could come from housing. As housing improves, construction payrolls will rise and that would add to the belief that the moderate 163,000 payroll rise posted in July will be replicated if not exceeded in the months to come. When you consider that Washington is doing everything possible to destroy confidence, housing and finance are healing but only slowly, Europe is in recession with the monetary authorities continuing to talk big but carry a small stick and Asia is probably in worse shape than the official numbers indicates, it is a wonder that U.S. growth is as good as it is. Imagine what would be the situation if all those hurdles were cleared. That is the way investors will likely read the economic tea leaves.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com

# # #

Naroff Economic Advisors – June New Home Sales

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: June New Home Sales

KEY DATA: Sales: down 8.4%; Median Prices (Year-over-Year): down 3.2%

IN A NUTSHELL: “Home sales are bouncing around but the trend remains up.”

WHAT IT MEANS: I have been touting the housing market as the next leading light in the economy. Well, sometimes you have to take one step back to move two steps forward and that may have happened in June. New Home sales fell sharply. That was not expected. But as usual, the details may not really be as bad as they appear. First of all, sales of the previous three months were revised upward with the May numbers increased by 3.5% while the April numbers were boosted by nearly 4.5%. Those are pretty good sized increases and point to a market that is moving upward. So don’t be surprised if the June numbers also turn out to be a lot higher than initially estimated. Second, much of the fall off in sales came in the Northeast. If you believe the Census Bureau’s first round of guesses, new home purchases fell by a whopping and incomprehensible 60% in that part of the country. If you believe that, contact me immediately as I am selling shares in a bridge and a Broadway musical. Demand was down in the South as well while they rose sharply in the Midwest and more moderately in the West. Basically, the data can be volatile so let’s not get too worked up about one decline. Smoothing things out by looking at quarterly averages, second quarter new home sales were up by nearly three percent from the first quarter and nearly twenty percent from second quarter 2011. That’s solid improvement. Prices, however, did decline over the month and from last year. Sales at the upper end of the market eased and that hurt. Inventory is still minimal so that should keep prices from falling further if, as expected, sales rebound.

MARKETS AND FED POLICY IMPLICATIONS: In a world where the only data that matter are today’s data, this is not a good report. Indeed, most of us expected sales to have risen not fallen. Yet there is no reason to believe the market is weakening. The trend is still up and builders remain quite upbeat. Indeed, it is hard to believe that the market is turning downward when the Home Builders’ Confidence Index jumped in July to its highest level in over five years. Either developers are clueless or the data have yet to catch up with reality. I am on the side of the latter. Still, investors don’t like to be surprised, especially on the downside so this report cannot help build confidence in the economy. But it is earnings season and once again, what businesses did will probably dominate short term movements in the market. On Friday, second quarter GDP will be released and that should bring the discussion back to the economic numbers. Unfortunately, that report will likely be viewed more through a political lens than an economic one.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com

# # #

NAROFF ECONOMIC ADVISORS – JUNE HOUSING STARTS AND PERMITS

NAROFF ECONOMIC ADVISORS

Joel L. Naroff
President and Chief Economist

INDICATOR: June Housing Starts and Permits

KEY DATA: Starts: Up 6.9%; 1-Family: Up 4.7%; Permits: Down 3.7%; 1-Family: Up 0.6%

IN A NUTSHELL: “The missing link, the housing market, is slowly coming back and that is one reason we can hope that growth is not a weak as believed.”

WHAT IT MEANS: Housing was usually stage one of past economic recovery rockets and this time around the bursting housing bubble was a chief reason this upturn is a bottle rocket not a Saturn VB moon rocket. Slowly but steadily that is changing.

Housing starts jumped in June to the highest level since the financial crisis exploded in October 2008. Both single-family construction and multi-family activity rose solidly. Gains were generally across the nation but the West and the Northeast were the leading lights.

Starts surged by nearly 37% in the West and by more than 25% in the Northeast. Large cut backs in apartment construction held back building activity in the South and Midwest.

Looking forward, permit requests did ease but they had been running well above starts previously and now they are more in balance. Indeed, last month I had forecast a pop in June starts because of the large gap between starts and permits.

Consequently, we have to expect that starts will be stable in July since permits are now slightly below starts. There are a lot of permits that have yet to be used so construction should remain firm.

MARKETS AND FED POLICY IMPLICATIONS: Home construction rose robustly in the spring as the housing market continues to make progress in its recovery. Even with that improvement, first-half 2012 starts are maybe one-half where they should be in a normal market and that leaves a lot of room for further gains.

The extraordinarily low mortgage rates, which are still dropping, should help though not as much as we would like. People still need down payments and with equity down and prices only beginning to rise, it will be quite a while before a strong market becomes a reality.

The rise in the housing market should add to the debate about how fast the economy grew in the spring. Estimates of second quarter growth have been marked down dramatically since the weak June retail sales numbers were released.

Yes, consumption was not a major driver of growth but to some extent that may be offset by the continued strength in housing. And unless peace has broken out across the world and I managed to miss that email, the sharp declines in defense spending that have restrained growth in the last two quarters could easily turn around.

Thus, I believe that second quarter growth, which will be released on Friday, July 27th could come in north of 2%. Strangely, a number just above 2%, which is not very good, would be a major positive surprise and investors are looking for anything to boost confidence.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com.

# # #

Naroff Economic Advisors — May Employment Report

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: May Employment Report

KEY DATA: Payrolls: +69,000; Unemployment Rate: 8.2% (up 0.1 percentage point)

IN A NUTSHELL: “There is no sugar-coating this report, it was bad.”

WHAT IT MEANS: The so-called “all important” employment report was released today and it was a real stunner. Job gains in May were disappointing, to say the least.

Yes, there were the usual strange elements. For example, construction, including residential and large projects such as road construction was down sharply. There were no other data to indicate this was happening. We also saw major cut backs in seasonal industries such as garden supply stores and in amusement and recreation.

Did we really stop working on our back yards and going to baseball games? Okay, those of us in Philadelphia are a little upset about the Phillies, but that is a different story. But the rest of the report was nothing great as there were few areas outside health care where hiring was solid.

The government at all levels, keeps cutting back and that is not helping. There were other reasons to be concerned. Wages and hours worked were down which has negative implications for income. As for the unemployment rate, there was at least a little some news in the disappointing rise in the rate. The increase was driven by a huge jump in people looking for work.

While employment was up sharply in this survey, it could not keep up with the rise in the labor force. We have been looking for this uptick in the workforce for a while as it normally signals an improving outlook on the economy.

MARKETS AND FED POLICY IMPLICATIONS: There is little positive in this report other than a rise in the labor force. Businesses have become really cautious, a pattern we saw last year at this time. Then, high gasoline prices, a tsunami and the insanity in Washington joined to crater the economy. By the fall, conditions had turned back around.

This year, high gasoline prices, Europe and the looming end of year Washington insanity are playing on the minds of households and businesses. Will we see a rebound as we did last year? That is not clear but we can hope so. I say that because I have no good explanation for the sharp deceleration in hiring has occurred.

Were any of the factors listed above so great as to stop businesses from adding workers? Are households really changing spending patterns because of Europe or Washington? Not if you consider the solid rise in consumption and inflation adjusted disposable income in April. Since I cannot point to anything to clearly explain the slowdown I will simply wait and see and worry.

As for investors who are already fearful of Europe, this report can only add to their concerns. Meanwhile, with rates so low, the Fed really has nothing to do. The markets are doing the job for it.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com.

# # #

Naroff Economic Advisors — February Spending and Income

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff, President and Chief Economist

INDICATOR: February Spending and Income

KEY DATA: Consumption: +0.8%; Inflation Adjusted: +0.5%; Disposable Income: 0.2%; Inflation Adjusted: -0.1%

IN A NUTSHELL: “Households are raiding their piggy banks to support their buying habits.”

WHAT IT MEANS: With gasoline prices near or above the $4.00 a gallon level, worries are that spending will slow.  That happened in 2008 and 2011, the other times we passed that dreaded barrier.  So far, that is not happening. Households are shopping till they’re tired once again, helped along by an improving labor market that is causing confidence to rise.

Consumption rose at a robust pace in February and it was not just for gasoline.  Spending was up across the board but most importantly for services.  This component, which makes up about two-thirds of consumption, had been going nowhere.  Whether the surge posted in February is a one-month wonder or the beginning of a trend is hard to say, but I will take it for now.   With the January spending numbers revised upward, it looks like consumption could be robust during the first quarter of the year.

Whether that will be sustained is a real question.  Incomes are rising at a slower pace than spending.  There were some decent gains in wages and salaries, but nothing near what is needed to sustain the current shopping spree.  Adjusting for inflation, disposable income was actually down, not a good trend.  As a consequence, the savings rate fell to 3.7%, a rate we haven’t seen since August 2009.

MARKETS AND FED POLICY IMPLICATIONS: This was a good report that also contained a warning. While households want to spend and will raid their bank accounts to support that habit, unless income gains start improving consumption will have to slow.  Of course, the need for wages and salaries to rise faster so that demand can improve is an issue I have been discussing for a very long time.  The improving job market may be starting to resolve the tension between controlling labor costs and paying the income needed to generate strong increases in demand.

A better economy allows for rising wages and that triggers growing demand which improves hiring and wages. That leads to further increases in confidence and we did see today that the University of Michigan’s index was up in March.  Consumption during the first two months of this quarter is running well above estimates. I suspect most other forecasters will be joining me out on my limb and revising upward their first quarter forecasts. I have been expecting growth to be closer to 3% while the consensus is about 2.5%.

The prospect that first quarter growth will not be as modest as currently predicted should buoy investor confidence.  As for the Fed, another 3% quarter would raise more questions about its target date for tightening of mid-2014.  I have it happening by the end of next year and this report only adds to that belief. Even if that happens, though, rates would still remain low for a very long time.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com.

Naroff Economic Advisors — January New Home Sales

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: January New Home Sales

KEY DATA: Sales: -0.9%

IN A NUTSHELL: “Rising builder confidence should start showing up in more contracts for new homes being signed as we go through the first half of the year.”

WHAT IT MEANS: Home construction has slowly been on the rise and that trend is likely to continue. While new home sales eased in January, it came after a large upward revision to the December numbers. When I see the data revised upward, it usually means that activity is accelerating through the month and that trend is not picked up in the first calculations.

The National Association of Homebuilders’ confidence index hit its highest level in four years with the sales index surging. That may not have shown up in the sales data yet but it will. Thus, the small drop in new home purchases in January should not be taken as a signal that the sector is faltering again.

What is of concern was the huge differential in demand across the country. Sales jumped sharply in the Northeast and South but fell by double-digits in the Midwest and West. Weather issues in the Midwest may have played a role there while the overhang of distressed homes is likely keeping down new home purchases in the West. Prices are still quite soft and three-quarters of the homes are going for less than $300,000.

The McMansions of the past two decades have become the MiniMansions of this decade. Builders are keeping the supply of new homes on the market tight and the number of homes for sale is lowest in the nearly fifty years the data have been collected. At current selling rates, the inventory is at its lowest level in six years.

MARKETS AND FED POLICY IMPLICATIONS: While sales eased, all the signs are for the new housing segment to continue to recover this year. However, housing in general is being restrained by mortgage and appraisal issues while the new home portion will continue to be buffeted by the acceleration of the foreclosure process.

There were about 7,000 jobs added in the residential construction industry in January and we could be seeing those types of gains continue for a while. We are starting off the year at a sales pace that is well above what was recorded during 2011 so I expect the market to improve and add to growth all year.

Investors may look at the headline number and be a little troubled. But the pace is actually above what most of us had forecasted given the original December sales pace so people should not be disappointed. As good as the economic data may seem, the issue remains energy and the surge in the price due to uncertainty over Iran.

You have to hand it to the Iranians, as long as they can sell their oil, by saber rattling they have managed to get the price up sharply and their revenues are surging. Of course if the bank restrictions sharply curtail their exports, oil prices could rise even further so until the Iranian crisis eases, look for high and rising gasoline prices.

The jump in gasoline prices curtailed the recovery last spring and it is likely to slow things once again. And of course the Greek situation is still a work in progress. It just seems that the only luck the recovery has is bad luck.

# # #

RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com.