September Employment Situation

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

INDICATOR: September Employment Situation
KEY DATA: Payrolls: 103,000; Private Sector: 137,000; Government: -34,000; Unemployment Rate: 9.1% (unchanged)

IN A NUTSHELL: “Better than expected is nice but we need employment gains to grow a lot faster if the unemployment rate is to come down.”

WHAT IT MEANS: Well, the sky is not falling just yet. Businesses continue to add workers and it is hard to see how we could be in recession if payrolls are growing. Still, the job gains in September were not great. The private sector’s increase was bloated by a return of about 45,000 striking communications workers. They were considered off the rolls in August. A strong gain was posted in the construction sector as nonresidential activity picked up solidly. Let’s wait to see if this is a trend. Retail, telecommunications, health care and professional services all were up. On the other hand, manufacturers became more conservative and cut their workforces a touch. The uncertainty about the world economy seems to be trumping solid order growth. Finance, transportation and wholesaling were also off. But the big negative was government workers, especially local education. Meanwhile, state governments added workers. And I thought it was the state governments that were having fiscal problems. The number of people finding positions was not enough to lower the unemployment rate, which remained at a way too high 9.1%. A rise in the labor force, which I have noted in the past is a sign of growing confidence, offset a rise in employment. The trend in job growth may be changing. Both the July and August numbers were revised upward, by a total of almost 100,000, and that may indicate there is some acceleration in hiring going on. Also, hours worked and wages rose so income gains have improved.

MARKETS AND FED POLICY IMPLICATIONS: It’s incredible how low our sights have been set. The idea that 103,000 workers being added in one month is good and should buoy investors is depressing. We need to be seeing job gains in the 200,000 range. But to get there the public sector has play its part, or at least stop getting so much in the way. In past recoveries, we might have had 25,000 jobs added, a swing of about 60,000 in the September total. In addition, home construction, a huge driver of job gains, needs to improve. With construction weak and government negative, the chances of getting back to strong payroll growth in the near future are not great. I see that happening, but closer to next spring when government layoffs should ease and construction may be somewhat better. Still, the markets should like this number, if investors can see past Greece and the downgrades of European banks. This is not a report that will tell the Fed that Operation Twist (the Fed calls it a “maturity extension program”) is unnecessary. Indeed, it only reinforces the view that with government cutting back, monetary policy is the only tool left to bolster growth.
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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 Existing Home Sales

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

INDICATOR: January Existing Home Sales
KEY DATA: Sales: up 2.7%; 1-Family: +2.4%; Condos: +4.7%; Median Prices: -3.7%

IN A NUTSHELL: “Distressed homes are being recycled and while that may be bad for prices it is good for the housing market.”

WHAT IT MEANS: The housing market is slowly coming back, powered by rising distressed homes demand. Existing home sales improved solidly in January to the highest level in eight months. In the spring, sales were boosted by incentives but now they are being driven by sales to investors. Regionally, only the Northeast posted a decline while the West led the way with a nearly 8% increase. The National Association of Realtors noted that all cash purchases and investor demand has been rising consistently and is beginning to make a dent in the inventory, which is falling sharply. But there is no such thing as a free home and with distressed properties accounting for such a large share of the demand, it is not surprising that prices continue to decline. In January, they were the lowest in almost nine years.

MARKETS AND FED POLICY IMPLICATIONS: This was a good report as sales are steadily rising and inventory is thinning. We have to be cautious about prices, though. Yes, they look abysmal but with so much of the market being driven by distress sales, it is not clear what has happened to the price of “normal” properties. I suspect in those cases, the price declines are limited and in those areas where foreclosures have been modest, they could even be rising. Don’t be surprised if housing adds to growth all this year, though with the pace of sales and construction so low, not a lot of jobs will accompany those gains. Meanwhile, back in the Middle East, turmoil continues and until we get some idea when it will end and what the implications are for oil and other commodities, investors are likely to remain on edge.

RE/MAX Connection Realtors disclaimer:
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 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.