October New Home Sales

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

INDICATOR: October New Home Sales
KEY DATA: Sales: +1.3%; Median Prices (Sept-Oct): -0.5%; Prices (Oct ’10-Oct ’11)): +4.0%

IN A NUTSHELL: “The new home market remains in the doldrums.”

WHAT IT MEANS: Yes, new home sales rose in October but that is about all you can say about this report. First, the level of demand is miniscule. Think about it, only 25,000 newly constructed houses are being are being purchased each month. Second, the September sales rate was revised downward, not a trend you like to see. At least there were a couple areas around the country, the Midwest and West, where builders did see a strong pick-up in sales. But the Northeast was flat and there was a sharp decline in the South. Total sales for the first ten months of the year are down nearly 7% compared to 2010 levels. As for prices, they eased a touch over the month but were up quite nicely when compared a year ago. Builders are competing with distressed houses so they have to keep prices quite low. Builders continue to do a good job of controlling inventories so demand and supply are being kept relatively in balance.

MARKETS AND FED POLICY IMPLICATIONS: Housing has been adding a little to growth this year and that is likely to continue. But the operative word in that sentence is “little”. The huge bump in jobs, income and GDP that we usually get from a rebounding housing market is not likely to be seen for quite a long time so don’t expect overall growth to be great over the next year. Still, there really is no place to go but up so we can also count on housing to be a positive not a negative in the overall scheme of things. As for the markets, the story is the consumer and the apparently robust increase in sales during the “Black Friday” weekend. With today being “Cyber Monday”, it will be interesting to see how demand holds up. With discounts really high, earnings may not be spectacular but when it comes to the economy, it is all about the number of goods bought, not the dollar value so if people spent more on discounted products, that means consumption should be up sharply. This week we get the employment report so after the euphoria of open-wallets eases, we will get back to the most important economic indicator, jobs. The November payroll gains should be a lot better than the initially reported 80,000 rise in October. There could be a decline in the unemployment rate and an ‘8’ handle would be nice to see again.
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

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.
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

March Existing Home Sales

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

INDICATOR: March Existing Home Sales
KEY DATA: Sales: +3.7%; 1-Family: +4.0%; Condos: +1.6%: Median Prices (Year-over-Year): -5.9%

IN A NUTSHELL: “There are some signs of life in the housing market with a lot of it coming from the recycling of distressed homes.”

WHAT IT MEANS: After seeing that new home sales improved, everyone was expecting a solid increase in existing home demand. The National Association of Realtors reported that sales of existing houses did rise a decent amount in March. However, the level of sales is still quite depressed and was off fairly sharply from the March 2010 sales pace. Of course, the government incentives were still in the market at that time but much of the sales burst occurred later in the spring. Still, conditions are getting better as the improvement was spread across most of the nation with only the West posting a modest decline. Investors continue to drive the market and were about 22% of the purchasers in March, up from 19% a year ago. They love those cheap distressed homes, which now make up 40% of the market. Given the tight lending standards cash buyers are more than welcome. To get a Fannie or Freddie loan (which are the only games in town) a borrower has to have a credit score of about 760. With distressed homes a growing proportion of sales, it was not surprising that prices were down pretty sharply over the year. The supply of homes for sale rose for the second consecutive month. I consider that to be a sign that sellers have growing confidence in the market.

MARKETS AND FED POLICY IMPLICATIONS: Home sales are on the rise and the latest data from the Mortgage Bankers Association indicating the mortgage applications is rising is a further indication that the market is slowly improving. That is not to say it is strong or will be strong anytime soon. Still, the weakest link is beginning to put on a touch of muscle and if the trend continues, by year’s end conditions should look a lot better. Indeed, housing is not the biggest threat to the economy: it is oil. If oil prices continue to rise the expansion is not going to gain a whole lot of traction. The economy was changing gears when the price surge hit. Now we are looking at even softer growth during the first half of the year than I had and I was near or at the bottom of most forecasts. If much of the oil rise was uncertainty over supply (a polite phrase for speculation), then we should see a decent unwinding of the increase. That could come this summer and propel the economy forward during the second half of the year. I still expect that to happen. But for now, it is wait and worry about oil as the impact is rising as confidence is falling. That, of course, only reinforces the view that the Fed will complete QE2. As I noted a couple of months ago, the Fed will likely withdraw liquidity through a three stage process: First will be the completion of the quantitative easing with reinvestment of maturing assets and interest continuing. Then they would stop reinvesting. Finally, there would be actual rate hikes. That is a slow process that should start in June with the first rate hike coming at the end 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

March Housing Starts and Permits

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

INDICATOR: March Housing Starts and Permits
KEY DATA: Starts: +7.2%; Permits: +11.2%

IN A NUTSHELL: “When the weather outside wasn’t frightful, housing became a touch more delightful.”

WHAT IT MEANS: Now that the weather is warming up, we shouldn’t forget that there were a couple of months when conditions were truly brutal. It was not a major surprise that housing activity cratered in the first two months of the year so we should not be shocked that once it was actually possible to put the shovels into the ground, home construction improved. In March, housing starts rose solidly. There were huge increases in the Midwest and West and a solid improvement in the Northeast. The only region which posted a decline was the South. In addition, January and February’s start numbers were revised upward. It looks like housing will actually add to growth during the first quarter and that could ease the fears that growth could come in quite low. Looking forward, construction is likely to rise as we move through the spring given the strong rise in permit requests. Except for the Northeast, which was flat, builders took out a lot more permits in March and they are not doing that because of any regulatory change, as they did in December. Instead, the rise is likely the result of growing demand and expectations. Builders are doing a good job of keeping inventories under control as the number of houses under construction fell to another historic low.

MARKETS AND FED POLICY IMPLICATIONS: Home construction picked up solidly in March and activity should rise going forward. That is the good news. The bad news is that we are at record lows for homes under construction and completions while the number of housing starts remains not that far from the record low set in 2009 during the depths of the recession. But when it comes to GDP growth, it is all about changes not levels so housing should be a positive for growth this year. Of course, housing has become a much smaller part of the economy, constituting less than 2.5% of GDP at the end of last year. It was over 6% in 2005 and has average about 4.3% over the past thirty years. Thus, it takes a lot larger growth rate to have any major impact on the overall economy. Still, up is an awful lot better than down. That is good news for the markets which have been dealing with the reality that higher energy costs are not the tonic for a weak economy. But the Saudis announced they were cutting production because of the oversupply of oil, a point noted by OPEC. The members remember that when speculation gets carried away and prices surge above sustainable levels, the downside can be painful. It is impossible to forecast changes in speculative attitudes but I suspect that the upward momentum in oil is slowing and that could turn things around quite quickly. At least let’s hope so. As for S&P putting U.S. Treasuries on the watch list, remember, this is an organization that didn’t understand housing debt or European debt. It is incomprehensible that the debt limit will not be lifted so maybe we should just relax. The U.S. is not going to default.
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

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

December Durable Goods Orders

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist 

INDICATOR: December Durable Goods Orders

KEY DATA: Orders: -2.5%; Excluding Commercial Aircraft: 0.0%; Non-Defense, Non-Aircraft Capital Goods: +1.4% 

IN A NUTSHELL:  “The demand for capital goods on the part of business is still strong as it looks like investment will continue to boost growth.”  

WHAT IT MEANS:  Spending on big-ticket items, a key indicator of growth, seems to be holding up pretty well.  Yes, durable goods orders declined in December but that was due to a 99% drop in civilian aircraft orders.  It looks like there was only one order for a two seat Cessna.  Obviously, this is a very volatile component but for all of 2010, civilian aircraft orders were up a massive 66% compared to 2009 levels.  Excluding commercial aircraft, demand was flat in December.  More importantly, though, was the measure of corporate capital spending, which rose solidly.  Non-defense, non-aircraft capital goods orders posted a nearly 17% rise for all of 2010, a sign that businesses may not be hiring but they sure are getting their capital stock up to speed.  The December report, though, was decidedly mixed.  Orders for communications equipment, machinery and vehicles rose but were off for primary and fabricated metals, computers and electrical equipment and appliances.  In addition, backlogs slipped and inventories rose.  That is not the direction you want to see those categories go if you like expanding production.  

MARKETS AND FED POLICY IMPLICATIONS: This was a decent though not spectacular report.  Critically, businesses are spending money on capital goods and while that negates some of the need for workers, it still is a sign that the economy is moving forward.  Investors will like this report but there was a huge weather-driven surge in new unemployment claims that may raise some eyebrows.  The claims data have been bouncing around much more than normal with horrible weather (I am looking at about eighteen inches of snow outside my house) and government policy flip-flops messing up the normal patterns.  Thus, don’t take the rise as pointing to a weakening in the labor market.  But it is a warning that job growth remains softer than anyone would like and that is restraining consumer spending and overall economic growth.  The FOMC focused on that problem in yesterday’s meeting statement.  The January jobs report is a week away so let’s wait and see what comes out of those numbers.  If there is any warning, it is that weather could play a major role in keeping the gains down.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advise, 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