November Employment Situation

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

INDICATOR: November Employment Situation
KEY DATA: Payrolls: 120,000; Private Sector: 140,000; Unemployment Rate: 8.6% (down 0.4 percentage point)

IN A NUTSHELL: “It was nice to see the unemployment rate come down but if we are to see it continue to fall, firms will have to hire a lot more people than they did in November.”

WHAT IT MEANS: The November employment report was another of those good news/bad news releases. On the positive side, the unemployment rate fell sharply to its lowest level since March 2009. That was the teeth of the recession and the rate was racing upwards. Unfortunately, some of the decline came from a large drop in the labor force and that is not a sign of growing confidence that jobs are available. That said, the labor force numbers are fairly volatile so I will withhold judgment. Regardless, this large a decline in the unemployment rate is usually not sustainable unless job gains are being added robustly and that just is not the case. Hiring remains less than hoped for and as usual it was restrained by continued cut backs in the public sector. The construction sector is still shrinking though there have been other indications that activity has improved. Weakness in nondurable goods manufacturing almost completely offset increases in durable goods hiring. We did see the retail, finance, insurance, temporary help, education, health care and restaurant sectors add workers. So far this year, the private sector has added about 1.7 million new positions while the public sector has cut about 260,000 jobs. Earnings were down a touch and that does not bode well for income growth.

MARKETS AND FED POLICY IMPLICATIONS: Private sector additions to payrolls were better than initial expectations but not nearly enough to keep the unemployment rate from continuously declining. Indeed, I would not be surprised if the rate ticks up next month. But I don’t want to be the Grinch that stole the employment report as there is little doubt that the sharp drop in the unemployment rate will be the biggest news in the media. That should lead to some firming in confidence. Also, the solid Black Friday and Cyber Monday sales numbers, combined with improving vehicle sales point to consumers slowly opening their wallets. That is the signal businesses need to start ramping up hiring. Actually, that could be happening already and the data are simply not keeping up. Both the August and September job gain numbers were revised upward by about 100,000 from the original estimates. Over the past three months, the private sector has added an average of about 160,000 workers and that is likely to be revised upward as well. While that pace is not great, it is much better than is commonly perceived. It is also in hailing distance of the rate needed to keep the unemployment rate coming down fairly consistently. But we are not there yet and it will require continued consumer spending and clearing the European financial and coming economic disaster hurdle before that does occur. All said, this is a good report that holds out hope for better things to come but not so great that anyone should think the labor market is healthy and all is well with the world.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor 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

October Housing Starts/Weekly Unemployment Claims

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

INDICATOR: October Housing Starts/Weekly Unemployment Claims
KEY DATA: Starts: -0.3%; 1-Family: +3.9%; Permits: +0.9%; 1-Family: +5.1%; Unemployment Claims: 388,000

IN A NUTSHELL: “Housing is firming and some improvement may be in the cards, adding to the view that this recovery is becoming broader based.”

WHAT IT MEANS: The housing sector is a long way away from being healthy but maybe it is starting to get strong enough to move out of the ICU to the recovery room. Housing starts eased a touch in October and on the surface that does not look to be anything positive. However, there was a sharp increase in September and the modest decline indicates the sector managed to sustain that upturn. There was a nice increase in single-family activity but that was offset by a larger drop in the volatile multifamily segment. With the demand for rental housing rising, I expect the multifamily component to keep rising going forward – it just may be in fits and starts. Indeed, with permit requests jumping, improving starts numbers should be seen in the November or December data. Builders are quickly taking those permits and turning them into starts as can be seen in the further decline in the permits authorized but not started pace as well as the increase in the homes under construction rate. As for the labor market, there was a nice drop in new claims for unemployment insurance and it wasn’t just a one week wonder. These data can and do bounce around and the more stable four-week moving average fell below the critical 400,000 level, signifying the likelihood of future declines in the unemployment rate.

MARKETS AND FED POLICY IMPLICATIONS: Another day of pretty good numbers. Don’t expect housing to add lots of jobs or power the economic comeback, but it sure looks like it will be adding to growth going forward. Indeed, the Home Builders Associations confidence measure has jumped two consecutive months as developers seem to be seeing clearly improving conditions. Housing has typically been the first stage of the recovery rocket and its failure to ignite has been a key factor in the sluggish expansion. That the sector may finally be adding jobs is a positive sign. When added to the drop in the claims numbers, you can see that economic conditions are moving upward at an accelerating pace. However, and there is always a however, two major roadblocks stand in the way of solid growth: Rising oil prices and European debt issues. While a European collapse would cause the most problems, I believe that is not likely. If we get what most economists believe will be a mild to moderate European recession, the recovery will be slowed but not killed. But with oil above $100 a barrel, the prospects of $4.00 a gallon of gasoline is of major concern. Worse, the combination of a European downturn and high gasoline prices could move us back to where we were in the spring when the economy was making minimal headway. So, while I like what I see in the economic data, I recognize that we are not out of the woods by any means. That is something the Fed members are quite cognizant of and why Mr. Bernanke is so willing to stick his neck out and say he will keep rates low until mid-2013. As for investors, it remains Europe, Europe, Europe and it will stay that way for a long time.
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor 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

December Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist

INDICATOR: December Existing Home Sales

KEY DATA: Sales: +12.3%; 2010 Annual: -4.8%

 IN A NUTSHELL:   “With the confusion from the government’s buyers’ incentives finally a thing of the past, it appears that the housing market is getting better.”

 WHAT IT MEANS:  The weakest link may be finally eating some spinach.  Existing home sales soared in December wiping out the downturn that appeared after the first time/long time buyers’ incentives disappeared.  It looks like buyers are coming in to the market and that is occurring throughout the nation.  Every region posted double-digit gains.  The National Association of Realtors noted that distressed homes made up a significant portion of the sales with the percentage rising to 36% from 33% in November.   Prices eased back but largely because of a sharp drop in the West where foreclosures are the way to go.  There were increases in prices in the Midwest and South and a minimal decline in the Northeast.  For the year as a whole, median home prices rose a modest 0.3%.  Still, they were up.  The inventory of homes fell with the number of houses available down and the months of supply also off.  

 MARKETS AND FED POLICY IMPLICATIONS: This was a solid report that points to a firming in the housing market, at least for existing homes.  Clearly, distressed properties are a critical part of the recovery as those homes generally sell at a significant discount.  That makes it difficult for new home builders to compete and that part of the market will likely continue to lag.  Investors are becoming a very significant part of the market as they bought about 20% of the properties in December, according to the National Association of Realtors.  That is a good thing as the inventory has to be reduced.  Investors are not simply flipping the homes but are often renting them out, matching need with supply.  This is a valuable part of the process of working through the excess number of homes built last decade.  The sooner that happens, the quicker the housing market will return to normal.  This report is another in a long line that point to the recovery improving and investors and members of the Fed should read it that way.

December Conference Board’s Consumer Confidence Index

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist

 

INDICATOR: December Conference Board’s Consumer Confidence Index

KEY DATA: Confidence:  52.5 (down 1.8 points); Present Situation: 23.5 (down 1.9 points); Expectations: 71.9 (down 1.4 points)

IN A NUTSHELL:   “People are saying they are still worried but acting differently as they have hit the malls pretty hard.”  

WHAT IT MEANS:  The sluggish recovery is the result of consumers holding tightly to their hard earned dollars.  All the reports seem to indicate they have begun to blow the dust out of their wallets and are spending more.  Strangely, though, that attitude has yet to translate into rising consumer confidence.  The Conference Board’s December reading of household perceptions was down, surprisingly.  People are less confident about the current economy and future opportunities.  They are still quite worried about where the labor market is going and that is not good news because a smaller percentage of the respondents think their incomes will rise next year. Jobs are still issue number one and as long as the labor market remains less than stellar, workers will be concerned about their job securityAn additional reason for the continued uncertainty is the housing market.  The S&P/Case-Shiller October numbers came out today and they were disappointing.  Prices fell everywhere and eighteen of the twenty large metropolitan areas had a deceleration in their price gains.  Indeed, for the first time since January, the twenty-city index was down on a year-over-year basis.  Foreclosures continue to pressure the market and that is not going to change anytime soon.  With some much of their wealth tied up in housing, home price declines can only hurt perceptions of the world.  Stability would be nice but we have to stop falling before we can start rising and I am not sure there are lots of places across the nation where housing price increases are being recorded. 

MARKETS AND FED POLICY IMPLICATIONS: The data today were disappointing.  Declining housing prices only feed the uncertain beast that is the consumer.  But we also have had news that the holiday shopping season was quite good.  So, should we listen to what consumers’ say or watch what they do?   To me, the proof is in the doing and I am not so certain we should take too much away from the decline in the confidence index.  If that is repeated in January, yes, it might be time to redo the forecast.  But I have been marking my numbers up recently and for good reason: Most of the other data have been solid!  Unfortunately for investors, there is not a whole lot of important data coming out the rest of the week so they will have to make end of the year judgments on these numbers.  I suspect traders will probably close up shop and watch and wait until next week.