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.

Naroff Economic Advisors — January Existing Home Sales

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

INDICATOR: January Existing Home Sales

KEY DATA: Sales: +4.3%; 1-Family: +3.8%; Condo: 8.3%

IN A NUTSHELL: “Housing sales improved in January but the level is still quite low and a lot of the demand is for distressed homes.”

WHAT IT MEANS: The housing market is not being looked at as a major source of growth but it is a place that we would like to see some improvement. That is happening, though not at a great pace.

Existing home sales did rise solidly in January, but as the National Association of Realtors pointed out, a growing share of the sales were for distressed homes. Nearly a quarter of the homes sold went to investors. That is good as it shows that homes are being recycled into the rental market where demand is growing. But we really need regular buyers to come back at a robust pace if the sector is to get back to normal.

The changing demographics are helping power better condo sales. However, while demand for single-family dwelling was up over the January 2011 rate, it was down fairly sharply in the condo/coop segment. The supply of homes is tight, being roughly six months. Normally that would be a positive sign for the market.

If it is result of non-distressed homeowners being unwilling to sell their homes at the market price and the limited foreclosures, that isn’t an indication of a market that is getting ready to pick up speed. With the recent mortgage company settlement, look for supply of distressed homes to rise. That should keep prices soft. They were down about 2% over the year. Regionally, all parts of the nation showed gains but the biggest increase was in the West.

MARKETS AND FED POLICY IMPLICATIONS: While the housing market is slowly improving, there is little reason to think that the non-distressed segment of the market is poised to take off. Mortgages are still not easy to get, the appraisal process creates impediments to sales and is adding to the large number of failed contracts, equity is tight for many who would like to move and the decline in prices have caused a lot of homeowners to give up trying to sell their homes.

While this was a good report, the level of sales is still disappointing. Until the housing problems are resolved, which could take another three or more years in some regions, don’t expect sales or construction to pick up rapidly. That means construction job gains, which are finally added to payroll increases, should be okay but not a major source of new hiring.

# # #

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 Employment Report

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: January Employment Report

KEY DATA: Payrolls: +243,000; Private Sector: +257,000; Unemployment Rate: 8.3% (down 0.2 percentage point)

IN A NUTSHELL: “The economy is starting to turn the corner and the labor market is finally becoming a beneficiary of the improving economic conditions.”

WHAT IT MEANS: For months the data were coming in stronger than expected but it was not clear that businesses were willing to loosen the hiring strings. Well, that may be changing. Private sector firms hired a ton of new workers in January and the gains were across the board.

We were not just talking about service sector positions, though there were a lot of those. But while retailers added only about 10,000 workers, manufacturers hired an additional 50,000 people. Construction, wholesale trade, health care, transportation, professional services, temporary help and restaurants all joined in on the hiring binge.

There was some weakness in finance and information services. The biggest cutbacks, though, were in the public sector, as usual. Local education is still suffering the largest brunt of the budget cutbacks. With hours worked and wages rising, income should be up solidly as well. That will add to spending power, which is badly needed.

But the really good news was on unemployment front. The unemployment rate hit its lowest level in three years. There have been three consecutive declines of 0.2 percentage point, a drop that is much faster than anyone expected but not likely to be sustained.

In January, the improvement came despite a sharp rise in the labor force. That was offset by a huge increase in the number of people who say they are employed, showing it was the economy not statistics that are driving down the rate. (Note: The unemployment rate and payroll numbers come from a different survey.)

MARKETS AND FED POLICY IMPLICATIONS: This is the first time in a long time I can talk effusively about an employment report. It was strong in all components. Payroll gains were across the board. The unemployment rate decline resulted from rising employment not a declining labor force. Wages rose as did hours worked. What was not to like? Nothing!

Since the bottom was hit in February 2010, the private sector has brought back almost 3.7 million workers. Clearly, the jobless recovery is no longer jobless. Still, can we expect the good news to persist? Maybe not at the pace we saw in January, but conditions are such that solid payroll gains and a slow steady decline in the unemployment rate are likely to continue.

Unemployment claims are low enough to support further declines in the rate. Improving conditions in the manufacturing and services sector as reported by the Institute for Supply Management argue that the payroll increases can be sustained.

We still face the restraints of weak housing and limited credit so don’t expect economic or employment growth to surge. But it is likely we will see at least 2.5 million new jobs created this year. The unemployment rate could go below 8% by the fall. Those are not spectacular numbers but just a few months ago not very many people had that in their forecasts (I did, which is why I am saying that.)

Investors should love this report but Mr. Bernanke should be wondering why he insisted on saying that rates will stay low for another three years. If this labor market improvement continues, that is not likely to happen.

# # #

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 — Fourth Quarter 2011 Productivity/Unemployment Claims

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: Fourth Quarter 2011 Productivity/Unemployment Claims

KEY DATA: Nonfarm Productivity: +0.7%; Unit Labor Costs: +1.2%/Claims: 367,000 (down 12,000); 4-Week Average: 375,750 (down 2,000)

IN A NUTSHELL: “As is the usual case, with employment rising, productivity is moderating and that is raising labor costs.”

WHAT IT MEANS: Businesses have worked extraordinarily hard this recovery to restrain all costs but especially labor expenses. They have done so by working employees harder and longer and that has paid off in large increases in productivity and earnings.

Those days are slowly fading as job growth is picking up. The new workers must be trained and at least until demand rises faster, there is somewhat less for each worker to do. Thus, we are now in the normal productivity slowdown phase.

Output by each worker grew in the fourth quarter at less than half the pace posted in the summer period. The biggest decline was in manufacturing, which has been gearing up to deal with rising sales. That sector went from robust increases to decline.

The slowdown in productivity has some major implications for business costs. Worker compensation is rising and even adjusting for inflation, it actually improved at the end of 2012. For all of 2011, productivity rose at the slowest pace since 2008.

If you want to know why consumer demand has not surged, just look at the compensation numbers: Hourly compensation adjusted for inflation fell by 1.2% in 2011. It’s hard to buy more when your spending power is being diminished.

Even with the moderation in productivity, it looks like hiring will remain on the rise. Weekly unemployment claims fell and the trend level has reached a point where the unemployment rate should go down if not monthly, fairly steadily.

MARKETS AND FED POLICY IMPLICATIONS: Usually you have to give up something to get something and that is the case with jobs. As payroll gains accelerate, productivity normally eases, raising business costs but also increasing worker compensation.

That we are seeing that happen should be cheered as the consumer is the centerpiece of this economy. More jobs mean more income and as the unemployment rate declines, wage gains accelerate. That will provide the means to greater consumption and economic growth.

So both the productivity and unemployment claims numbers, when taken in tandem, paint a picture of an economy recovering. The Fed acknowledged that the labor market was beginning to improve but discounted any major drop in the unemployment rate. The accuracy of that forecast will determine the ability of the FOMC to keep rates low until the end of 2014.

I think unemployment rates will fall faster than the monetary authorities do so I expect rates to rise well before that date. Since tomorrow is employment Friday, we only have a few hours to wait until we see how the year started off but not matter what number prints, the decline in the claims numbers does point to an improving labor market that will ultimately show up in more jobs.

# # #

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 — December Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: December Existing Home Sales

KEY DATA: Sales: up 5.0%; 2011 vs. 2010: Up 1.7%

IN A NUTSHELL: “Home sales are picking up steam but with so many contracts failing, it is not clear how fast conditions can improve.”

WHAT IT MEANS: Once again we see that the housing market is slowly coming back. According to the National Association of Realtors, existing home sales rose solidly in December. The pace was the second highest of the year and it was the third consecutive month that demand has improved. The increases were spread across the nation though the Northeast and Midwest did significantly better than the South or the West.

But there were some disturbing developments in the data. The Realtors reported that one-third of the contracts failed to move to sales, many due to the appraisal process. If you cannot get an appraisal that matches the contract price, mortgages cannot be written. With distressed homes sales making up a growing share of total demand and with the process so restrictive, it is difficult in many places for sellers and buyers of non-distressed homes to complete a deal.

That has led to a second trend, a major reduction in inventory. It appears that many homeowners have given up trying to sell and the supply of houses dropped by over 20% in a year. As for prices, with investors making up a growing share of the buyers and with foreclosures and short-sales so high, it is hard to know what the price of a good house is anymore. I don’t even bother looking at the price data.

MARKETS AND FED POLICY IMPLICATIONS: This was another solid report that shows the potential strength of the housing market and some of the reasons for the weakness. People want to buy homes but too often the process makes it too difficult if not impossible to do that.

Both the existing and new home portions of the market are being hurt by the overhang of so many distress houses. For builders, the ability to compete with these cheap homes makes construction difficult. For people not interested in distressed homes, the appraisal and mortgage process can make it impossible to finalize a deal even if the buyer and seller agree on a fair price.

Until this large inventory is removed or at least made less of a factor, don’t look for housing sales to rise sharply. And to the extent that the trend in prices is a captive of the distressed home problem, prices will remain weak, equity will continue to erode and home sales, worker mobility and construction will be limited.

Unfortunately, there is no simple solution to the problem and that means we are in for a long, long period of recovery which will limit growth. While this report supports those who are saying the economy is improving, it also makes the point that some at the Fed are arguing that the recovery remains tenuous.

# # #

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 — December employment report

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: December Employment Report

KEY DATA: Payrolls: 200,000; Private Sector: 212,000; Unemployment Rate: 8.5% (down 0.1 percentage point)

IN A NUTSHELL: “It may not be a lean, mean jobs machine just yet but the labor market is finally starting to pick up steam.”

WHAT IT MEANS: Yes, it is all about jobs. That is not a political comment but a commentary on the missing link in the economic recovery. Job growth affects confidence which in turn affects spending and ultimately the willingness and need of business to add workers.

At least in December, companies began the process of rebuilding their workforces at a decent, though hardly robust pace. The payroll gains were widespread. There were some large increases in seasonal sectors such as retail, warehousing and transportation.

It took a lot of people to meet the strong holiday shopping season and get the gifts to everyone on time. But there were also solid gains in the manufacturing, business services, health care and two of the weakest areas, construction and finance. Declines were posted in the shrinking state and local government sector and strangely in the temporary help industry.

Normally during the holiday shopping season you would expect strong increases in the usage of temps but that didn’t seem to be the case. But the biggest news was the decline in the unemployment rate to its lowest level in nearly three years. It was expected to rise and the continued drop is good news. Some may argue that the downward movement is being driven by a shrinking labor force. Ideally, you want the rate to decline as more people seek work but a much larger number of people find work.

However, the length of the slow recovery is forcing more and more people off the unemployment rolls. They are part of the labor force when they get unemployment compensation but after nearly two years of not finding work, a lot of people simply give up. In essence, they were bloating the labor force while collecting unemployment and now the labor force is better reflecting job search decisions.

Another positive element of the report was a rise in hours worked and hourly wages. That bodes well for income growth, which has to accelerate if demand and economic activity is to pick up steam.

MARKETS AND FED POLICY IMPLICATIONS: This was a better than expected report in all ways: There were more jobs created than most economists thought while the unemployment rate fell instead of the predicted rise.

Unfortunately, we need more like 300,000 jobs to get the unemployment rate coming down consistently and rapidly and that is not likely to happen this year. Also, firms need to grow wages faster if consumption is to accelerate. There is not a lot of appetite to give raises.

So while this is a good report, we need more of them and they need to get a lot better if the economy is to start expanding strongly. Nevertheless, this is another in the long line of positive indications that the economy is starting to come back. Investors should embrace this report but with Iran making threats and Europe a constant worry, who knows where the markets will go.

# # #

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.

January Housing Starts and Permits

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

INDICATOR: January Housing Starts and Permits
KEY DATA: Starts: +14.6%; 1-Family: -1.0%; Permits: -10.4%; 1-Family: -4.8%

IN A NUTSHELL: “If you can’t buy a house you have to rent so builders may now be putting up apartments instead.”

WHAT IT MEANS: With housing finally starting to add to rather than subtract from economic growth, it would be nice if we saw signs that it would continue. That just might be the case. New housing starts soared in January, which is good news. However, all the gain was in multi-family construction as single-family activity eased back. The stand alone home weakness is not a surprise given the massive excesses of the last decade, coupled with tight credit standards and the overhang of foreclosures. Those factors will continue to keep single-family building to a minimum. What is nice to see is that developers seem to be picking up the slack by putting up rental and condo units instead, a trend that is likely to continue. While permits fell sharply, they were artificially bloated in December by regulatory changes in some states. That they still were above the levels posted in the fall seems to point to a steady improvement in residential construction. Builders are keeping supply under control as homes under construction were flat. On a regional basis, the only “weak” area was the West. However, the level was still quite decent and it was down because of a December’s 40% jump. These data are volatile so some reduction after such a large increase is not anything to be worried about.

MARKETS AND FED POLICY IMPLICATIONS: Housing is the beast that devoured the economy and it is one of the missing links that is causing the recovery to be so sluggish. If there any hope for housing construction it is not in homeownership but in rentals. That trend is happening to some extent as investors are turning the distressed houses in rental units. The surge in multi-family activity, which really started in the second half of last year, is an indication that builders may be looking toward the rental portion of the market, not just condos, as the way to stay in business. That said, it is always dangerous to make any assumptions about construction based on winter data. Given the seasonal adjustment factors, it doesn’t take a lot of new activity to create large percentage swings in activity. So think of the rise in multi-family construction as a possible beginning of a trend but don’t assume it is written in stone. Regardless, this report is neither fish nor fowl for investors and with wholesale prices soaring, the markets will likely focus more on inflation than housing. The Fed member may also have to do some soul searching about where inflation may be heading.

RE/MAX Connection Realtors are not licensed financial advisiors, and are not providing any financial advise, you should consult with a licensed financial advisior prior to making any financial decisions. RE/MAX Connection Realtors are only 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 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com