November Pending Home Sales/Weekly Unemployment Claims

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

INDICATOR: November Pending Home Sales/Weekly Unemployment Claims
KEY DATA: Pending Sales: +7.3%/Weekly Claims: 381,000 (up 15,000)
IN A NUTSHELL: “Most housing reports are looking up but prices are still in the dumps.”

WHAT IT MEANS: It is hard to get really strong growth if home construction remains weak, so any good news about that sector should be trumpeted. So here is today’s blast: Housing sales are beginning to climb. The National Association of Realtors reported that pending home sales, which are contract signings, jumped in November to the highest level since April 2010. Since that was when the government’s “first time, long time” buyers’ incentives were in place, it looks like we are now in the midst of a real, not policy-hyped recovery. Improvement was seen in all regions with the West and Northeast leading the way.
In a separate report, unemployment claims jumped last week. That was expected though the rise was somewhat more that predicted. Still, the trend is down as the four week moving average fell fairly sharply. It is now at a level that tends to signal declining unemployment rates.

MARKETS AND FED POLICY IMPLICATIONS: Most housing data have been coming in better than expected and that is an indication that the log jam is beginning to break. The jump in pending home sales should lead to a further rise in sales over the next few months. With affordability at a record high, if we can only make it a little easier to get a mortgage we just might see the sector show some real strength. Unfortunately, the huge number of distressed houses overhanging the market will continue to put downward pressure on prices and limit the uptick in home construction. Still, this report adds to the belief that the weakest link in the economy, housing, is starting to come out of it.

Next week is a big one as we get the December jobs report on Friday. While the rise in the claims number is a warning that the labor market is still not strong, there are real hopes the payroll numbers will be quite solid. The bigger question is the unemployment rate, which gapped down in November. A modest rise, which is expected, would be a positive sign that conditions are firming and that seems to be the message coming from the claims numbers. So we are ending the year on an up note and I want to wish everyone a

HAPPY NEW YEAR
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.
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November Existing Home Sales

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

INDICATOR: November Existing Home Sales
KEY DATA: Sales: +4.0%; Year-over-Year: 12.2%; Prices (Nov ’10-Nov ‘11): -3.5%;

IN A NUTSHELL: “It turns out the housing collapse was greater than thought but at least the process of digging out from the deep hole is beginning.”

WHAT IT MEANS: The housing market is healing, albeit slowly. Starts are improving and now we see that existing home sales are on the rise. Demand rose solidly in November led by a jump in single-family activity. Condo purchases were flat. The gains were across the nation though there was nearly a double-digit rise in the Northeast. So far in 2011, total sales are running almost two percent above the 2010 level. The increases were pretty evenly distributed between the single-family and condo markets. That said, the level of demand is unbelievably low. The National Association of Realtors revised the data for the period 2007 through 2010 and reduced total sales by over 14% or by about three million fewer sales. In other words, the meteor that cratered the housing market was a lot larger than initially estimated. And you thought the dinosaurs had problems. The reduction is in synch with the larger decline in GDP during the recession that was reported by the Bureau of Economic Affairs. As for prices, they are continuing to slide and for the first eleven months of the year, the median price has dropped nearly 5%, again with condos down a little more than single-family units.

MARKETS AND FED POLICY IMPLICATIONS: While some may concentrate on the huge downward revision to sales, the real story is the current trend in housing demand and that seems to be up a little. When you look at growth, it is the change in activity not the level of activity. Sales bottomed in July and have been moving up fairly steadily since. Unfortunately, the large number of distressed homes being purchased is reducing not only sales but supply as well. People with well-maintained homes know they cannot get their desired price, even if buyers are willing to pay it, as long as distressed homes are used as comps. It looks like these “normal” homeowners are simply keeping their houses off the market and that is reducing the number of homes for sale. That makes the supply of homes number somewhat useless as it implies that once conditions turn around, the ‘for sale’ signs will pop up like crazy. The latent supply is there, the actual supply is not. Regardless, this is another positive report that should make it clear that the economy is heading into 2012 with growing momentum. Unless Europe crashes and burns, and never underestimate the ability of politicians in any part of the world to do the wrong thing, growth in the U.S. next year could be decent. That is my forecast and I am sticking to it, at least for now.
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.
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September Durable Goods Orders

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

INDICATOR: September Durable Goods Orders
KEY DATA: Orders: -0.8%; Excluding Aircraft: +2.0%; Backlogs: +0.8%

IN A NUTSHELL: “Businesses continue to invest at a robust pace and that bodes well for not just current but future growth as well.”

WHAT IT MEANS: Can we finally put to bed the notion that the economy is teetering on the brink of a double-dip recession? Durable goods order fell in September but only because the hugely volatile aircraft sector tanked. Excluding both domestic and defense aircraft orders, where increases or decreases don’t do much to near term activity, demand for big-ticket items soared. Strong gains were reported in computers, metals, machinery and electrical equipment. The closely watched measure of business capital spending, non-defense/non-aircraft capital goods orders, jumped sharply. There were some declines in communications equipment and vehicles but with vehicle sales firming, that is likely to reverse in the future. Looking outward, the rising orders are causing backlogs to build dramatically and that implies industrial production and most likely hiring will be solid in the months to come.

MARKETS AND FED POLICY IMPLICATIONS: This was a robust report that continues the long line of data that indicates the economy did pretty well during the summer. It is hard to believe that businesses would invest heavily if they are not seeing the demand needed to support those expenditures. We get GDP tomorrow and I think it could surprise by coming in over 3%. Whether that calms nerves about the economy is a different story, since job gains continue to lag. Until payrolls rise more rapidly and the unemployment rate falls, the perception will be that the economy is in the dumps. Clearly, it is not. As for investors, it still seems to be about Europe and for fairly good reason. While most economists agree that the alternative to a decisive solution of the sovereign debt issue is chaos, that doesn’t mean the politicians believe that to be the case. So every time things look bright, the markets soar but when a solution gets pushed down the road, investors panic. Until a defensible policy is agree upon, look for market volatility to continue even if it appears that the U.S. economy is healing.
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.
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September 21, 2011 FOMC Decision

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

September 21, 2011 FOMC Decision

“To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities.”

Rate Decision: Fed funds rate maintained at a range between 0% and 0.25%

The FOMC met today and announced it would drive down longer term rates. With the economy recovering slowly and with “significant downside risks to the economic outlook, including strains in global financial markets”, it was deemed necessary to do a lot more than had already been done. Indeed, the size of the program, $400 billion of purchases of assets with maturities of six years or longer offset by sales of assets with maturities of three years or less, is somewhat greater than expected. But given the warning that the modest recovery could get worse, a large program made sense. You either go all in at this point or fold your cards and the Mr. Bernanke has gone all in.

Will this so-called “operation twist” work? Clearly, the emphasis on driving down longer term rates is an attempt to get mortgage borrowing and capital spending going a lot faster. But businesses are flush with cash already and it isn’t rates that are stopping them from hiring or investing more. Companies are just uncertain about the direction of the economy and demand is not growing fast enough to require greater job growth. Households are reducing their debt, not adding to it, and as we saw from today’s National Association of Realtors existing home sales report, failed contracts are growing. That is more an issue of appraisals and cautious lending practices than rate levels.

Where this will work is in the refinancing sphere. If you can get the refinancing done, the additional cash flow will help both consumer and business spending. On the mortgage side, the lowering of rates coupled with the Fed’s decisions to “reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities” should drive down mortgage rates to levels that will entice an awful lot of potential buyers and refinancers. Again, with the issue being appraisals not rates, this may not work that well but you have to give then kudos for trying to help the housing market.

Looking outward, once confidence returns, the lower rates, which should continue well into 2013, will become a major positive. As the economy improves and the desire to borrow grows, the extraordinary low rates will likely lead to rapid increases in borrowing. But that is likely to be in the future, not in the next six months. And it is that potentially strong growth in borrowing that presents the risk of inflation ramping up. But again, that is not right now.

The Fed is in a tough position. Fiscal policy is becoming more restrictive just as the risks to a disappointing recovery from Europe ramp up. The Fed Chairman is betting that any future (2 years or more down the road) inflation pressures can be handled. Instead, Mr. Bernanke wants to do whatever he can to prevent a double-dip. Given the state of confidence and the political gridlock, I believe the risks are worth taking even though three members of the FOMC differed and cast dissenting votes.

One final comment: Politicians of all stripes are taking shots at the Fed. That is their right but it shouldn’t be happening. You cannot say that the recovery is too weak and jobs have to be created and then do nothing, especially if there are dark clouds out there that could rain on the limping parade. Demanding that the Fed to “don’t just do something, stand there” is not reasonable and probably self defeating. The last thing a Fed Chair wants to be perceived as being is intimidated by politicians. An independent Fed, even a wrong-headed Fed, is a lot better than a politically driven Fed and you can be sure that this and every other Fed has not been politically driven.

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.
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July New Home Sales

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

INDICATOR: July New Home Sales
KEY DATA: Sales: 298,000 units annualized (down 0.7%); Median Prices (Year-over-Year): +4.7%

IN A NUTSHELL: “With all the uncertainty about the debt ceiling and the economy, it is not surprising that buyers shied away from signing on the bottom line to buy new homes.”

WHAT IT MEANS: New home sales edged down once again as buyers just don’t want to commit to anything right now. The level of sales is pitiful, being only slightly above the all-time low set last summer. Thus, while the year-over-year increase of nearly 7% might look good, it is simply coming off the lowest of lows. Regionally, the sales numbers are totally bizarre and reflect the limited size of the market. In the Northeast, purchases doubled. Of course there were almost no homes sold in June so the increase only brought demand back to more “normal” levels. There was a small increase in the Midwest but moderate declines in the South and West. Builders recognize their plight and they are basically doing no speculative building. The number of homes for sale fell. You probably have to go back to Colonial times to see the number of houses on the market this low (okay, that’s a small exaggeration but you get the picture). As for prices, they were up fairly solidly over July 2010 levels. A somewhat larger percentage of the homes selling for over $500,000 pulled up prices.

MARKETS AND FED POLICY IMPLICATIONS: This report reminds us that the recovery cannot count on the housing sector adding much to growth. That is hardly a surprise. The pressures facing home builders do not end with the economy as they also have to face the reality of price cutting in the distressed home segment of the market. Worse, the level is so low that even strong increases in sales and housing starts will not add that much to growth. But as long as residential activity does add a little to growth, which it is likely to do, we are okay. With the Fed going on its “camping trip” to Jackson Hole this week, everyone is waiting to see what, if anything, Mr. Bernanke has up his sleeve this year. I suspect he will simply lay out the tool box and make it clear that the FOMC is “locked and loaded” and ready to pull the trigger on any and all the policy tools it has available. Whether those policies constitute treason, I leave up to the reader, but with the Fed the only game in town, the pressure is on to make sure the slow recovery does not fail. Mr. Bernanke is an expert on the Great Depression and he knows policy missteps cut short the attempts at recovery. While moving to restrictive fiscal policy may be the same mistake made in the 1930s, the Fed will reiterate that it will pump as much into the economy as it can. Whether lower rates can do anything is another story.
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.
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July Housing Starts and Permits

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

INDICATOR: July Housing Starts and Permits
KEY DATA: Starts: -1.5%; 5+ Units: +6.3%; Permits: -3.2%;

IN A NUTSHELL: “Home construction may not be the leader of the pack but it no longer looks like it will hold things back.”

WHAT IT MEANS: Housing activity is a key factor in the sluggish recovery and there are no great expectations that the sector will return to being robust for quite a while. Given that reality, what I have been looking for is the sector to move forward at a pace which will actually add to growth and that may be happening. After a solid rise in June, there was a modest decline in construction in July. To me, this represents not a backward movement but a solidification of the gains that were made. Housing starts are also up nearly 10% from July 2010, so maybe the improvement is really underway. The multifamily segment rose strongly and since rental housing looks to be the place to be given the inability to buy new homes, this is a good sign that the market is working. Improvement was seen in the East and West. However, a large decline in the Midwest largely created the drop in housing starts. Was weather a factor? That is not clear but a nearly 23% fall off seems to point to a special circumstance not a trend. There was a much more moderate decline in the South. Looking forward, permit requests also eased back but again they are up compared to last year. The number of homes under construction continues to drop, which is disturbing as it implies payrolls are not rising. This is due to the large number of houses that have been completed recently.

MARKETS AND FED POLICY IMPLICATIONS: Housing is coming back slowly but it is coming back. We too often forget that most of the problems arose in just a handful of major construction regions. A large part of the country did not participate in the housing bubble at nearly the same pace and are now beginning to come back. Don’t expect to see strong levels of construction anytime soon as the areas where so much of the construction used to take place are where the excess supply due to the distressed housing inventory exists. But if we see housing starts rise in other areas, which is most of the rest of the nation, then we know the sector is healing. I think that process has begun and I am buoyed by that. As for investors, the world is now the worry, especially Europe even as it appears the U.S. economy is beginning to show that it remains quite resilient. Watch August vehicle sales. With demand up in July, a good sales pace would signal the consumer is spending better than expected and with construction in the positive column, we could see third quarter growth better than the weak pace most economists now project.
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

July Employment Report

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

INDICATOR: July Employment Report
KEY DATA: Payrolls: 117,000; Private Sector: 154,000; State and Local Governments: -39,000; Unemployment Rate: 9.1% (down 0.1 percentage point)

IN A NUTSHELL: “You can tell how worried people are when 117,000 new jobs actually look like a good report.”

WHAT IT MEANS: The reports of the death of the recovery appear to be quite a bit premature. The private sector added jobs at a decent pace in July. Okay, the level is clearly not enough to get the unemployment rate to fall very much despite the decline posted in July. Though down is good, we need better job gains in the months ahead to really make a dent in the way too high unemployment rate. This report, though, does hold out hope that that could happen. The increases were widespread with just about every sector from manufacturing through retail and services showing gains in payrolls. There was even some hiring by construction firms. Once again, we learned that there is no such thing as a free budget cut. State and local governments sliced another 39,000 more people from their rolls and are now down by nearly 350,000 jobs over the past year. In contrast, the private sector added 1.7 million workers during the past twelve months. In normal recoveries, the public sector adds workers. If the public sector simply stayed flat, there would have been over two million jobs added, a moderate not weak recovery. Even a small public sector rise would have led to the July gains being at or above 200,000 and few people would have been worrying about job growth if that were the case. Weekly hours worked and earnings were up solidly and that points to good income growth. Wage and salary income has been lagging and it is hard to get consumers to spend more if they don’t have the money to spend. Maybe that is changing a little.

MARKETS AND FED POLICY IMPLICATIONS: This report points to the simple fact that the economy is not in recession. Hopefully, that buoys fearful investors. There is no arguing that conditions are good but there is a difference between the stock markets and the real economy. Wall Street and Main Street have become delinked. So don’t assume a stock panic means the economy has suddenly nose dived. I stand by my forecast that the economy is not likely to go into another recession and indeed if the decline in oil prices holds up, falling gasoline costs should lead to better growth as we move through the fall. There are implications in this report for Fed policy. The public sector job cut backs are a real drag on growth and the debt ceiling agreement makes it clear that belt tightening will continue to restrain activity for a long time. Monetary policy will have to lean against that headwind and that means the FOMC could signal next week that it is prepared to keep rates low for a longer period of time than had been expected.
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

June Consumer Spending and Income

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

INDICATOR: June Consumer Spending and Income
KEY DATA: Consumption: -0.2%; Disposable Income: +0.1%

IN A NUTSHELL: “With gasoline prices high, incomes not growing and the craziness in Washington creating uncertainty, is it any surprise that people stopped spending?”

WHAT IT MEANS: If the recovery is ever going to gain speed, it will have to come from households deciding they want to spend money again. That will trigger the spending of the $2 trillion sitting on the books of businesses. Well, in June households didn’t hit the malls or vehicle dealers very hard at all. Consumer spending slowed, especially for big-ticket items. There was some increase in soft good items but nothing to write home about. Meanwhile, the services segment, which is nearly two-thirds of all spending, continues to go nowhere. This part of the economy normally grows solidly and consistently and the failure to do so is a clear sign that people are still extremely cautious. Of course, to be able to spend a lot of money you need to make a lot of money and income growth is extremely weak. Wage and salary income was actually down in June. As for inflation, the declining gasoline prices led to a drop in costs.

MARKETS AND FED POLICY IMPLICATIONS: It’s tough to say anything positive about a report that points to consumers spending less money and wage and salary income falling. The spring data have been pretty distressing but we already know that given the weak GDP report. The question, as usual, is where we go from here. What worries me is that businesses are deriving their strong earnings growth through productivity gains, limited wage increases and foreign activities. While that may be good for an individual firm, when most companies do that, income gains become so limited that spending and ultimately growth fades. That is the problem we are now facing. Firms are generating robust earnings but Wall Street is delinked from Main Street and those profits are not creating lots of jobs. Until that changes, there is little reason to expect a strong rebound in growth, especially given the brakes being applied by the weak housing market and the cautious financial sector. At least the debt ceiling bill didn’t cut too much spending in the short term. If there were large spending reductions and/or tax increases, the outlook for growth would be even dimmer than it is currently. Indeed, while almost no economists are marking their short-term forecasts up, the downgrades are minimal. Which raises the question I am hearing a lot today: If a budget agreement was needed to improve growth, why aren’t people more optimistic about growth now that we have an agreement?

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

May Housing Starts and Permits

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

INDICATOR: May Housing Starts and Permits
KEY DATA: Starts: +3.5%; 1-Family: +3.7%; 5+ Units: +8.9%; Permits: +8.7%; 1-Family: +2.5%; 5+ Units: +29.3%

IN A NUTSHELL: “Builders may not be able to compete with distressed homes but that doesn’t mean they have closed up shop.”

WHAT IT MEANS: New construction is not going to be the driving force it once was in this economy, at least for quite a while. But there still are many people who prefer new homes and construction did improve in May. Maybe even more importantly, with so many households no longer able to get into the housing market, the demand for rental housing is rising. That has led to growing activity in the multi-family segment. The rise in construction was not evenly distributed across the nation as starts surged in the West, rose modestly in the South but eased back in the Northeast and Midwest. Looking forward, home building should pick up soon and possibly quite solidly. Permit requests were up strongly, especially for multi-family dwellings. The slowdown in construction in the Northeast may come to an end with gusto as permit requests rose by over 35% in that part of the country. They were also up solidly in the West and moderately in the South. However, there was a small drop in the Midwest.

MARKETS AND FED POLICY IMPLICATIONS: The importance of residential construction has dropped dramatically, which should surprise no one given how weak housing starts have been. However, GDP growth is all about changes in levels not the strength of those levels and it is very likely that housing will add to growth as we move through the second half of the year. Unfortunately, it looks like it has been a major drag during the spring quarter. The number of homes under construction has pretty much stabilized, which could also point to a bottom in activity. Thus, this report can be classified as a pretty good one despite the continued modest pace of construction. Regardless, I don’t think investors are hanging their hats on what happens in the housing market. We can have a recovery without the residential housing segment contributing greatly but it is just not going to be a robust one.

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

April Retail Sales

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

INDICATOR: April Retail Sales
KEY DATA: Sales: +0.5%; Excluding Gasoline: +0.2%; Excluding Gasoline and Food: 0.0%

IN A NUTSHELL: “Money is flowing out of consumers’ pockets but an awful lot is being pumped into gasoline tanks.”

WHAT IT MEANS: The economy continues to grow but the overriding question is: “How will the surge in gasoline prices affect the sales of other goods?” We got some insight into that with the April retail sales numbers and the initial returns are not great. While overall demand rose solidly, over sixty percent of the rise came from the increase in gasoline purchases. The other source of pain for consumers, food costs, also played a role with purchases increasing sharply as well. Indeed, when you exclude food and gasoline sales, where the rise was largely price driven, total retail sales were largely flat. People did buy more vehicles, which we knew from the unit sales numbers. Clothing and general merchandise stores did okay but the only winner was online companies. In contrast, furniture, electronics and appliances, sporting goods, restaurants and health care products were all off. The best news was an upward revision to the March numbers which could offset some of the negative from the wider trade deficit.

MARKETS AND FED POLICY IMPLICATIONS: This was a disappointing but not surprising report. Wage and salary income is not growing strongly so for most people, the higher gas prices are a constraint on their budget. But the commodity bubble (yes traders, it was a bubble and there was speculation) has at least started to deflate if not burst so going forward, we should see lower gasoline prices. The issues being created by the Mississippi flooding should only be short term. Look for the negative effects of the oil price spike to be unwound as we move through June (prices go up quickly but for some strange reason they fall more slowly). Thus, second quarter consumption should be soft but it could rebound sharply in the summer. If that sounds like a rationalization for my robust second half of the year forecast, so be it. But I am sticking to that forecast. This report has so much noise due to gasoline that I doubt the Fed will think much about it. But traders may get a bit concerned. What troubles me is that while gasoline prices may fall, food costs continue to rise as we saw in today’s wholesale price data. That could keep spending from really breaking loose. Nevertheless, retail sales should improve during the second half of the year.

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