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.
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

August New Home Sales

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

INDICATOR: August New Home Sales
KEY DATA: Sales: 295,000 unit annualized (down 2.3%): Median Prices (8 ’10-8 ’11): -7.7%

IN A NUTSHELL: “Builders are not building, supply is falling, distressed homes are too cheaply priced and it is difficult to get a mortgage and people are surprised that housing sales are going nowhere?”

WHAT IT MEANS: It would be nice if housing sales pick up but it didn’t happen in August, at least for new homes. Exiting house sales did improve and that is indeed the issue for builders. With so many distressed houses on the market selling for such low costs, frequently below replacement cost, it is extremely difficult for developers to compete. To do that, they have to down sell and that is what is happening. Forty seven percent of the newly built homes sold went for less than $200,000. The sales decline in August was propelled by a sharp cut back in the Northeast and West and a more moderate decline in the South. The Midwest posted a solid increase. Prices are falling but that probably reflects the need to build smaller, less luxurious and less costly homes in order to match the homes that are on the market.

MARKETS AND FED POLICY IMPLICATIONS: The new home market is in the dumps and there is little reason to think it can right itself anytime soon. The problems are huge: Distressed houses are selling for prices that are at times impossible to match, appraisals are difficult because comparables are often distressed houses, many households don’t have much or equity any left in their homes so they cannot trade up or down to a new house and financial institutions are cautious in their lending, partly due to regulatory issues. We are going to have to get used to a slowly improving market at best. That does not bode well for the economy or jobs as this sector generates so many new positions. Indeed, the housing and credit issues seen here are a clear indicator of why this recovery always was going to be and for a while will continue to be disappointing. Anyone who says we can have a strong recovery without housing is missing the point. But we can have a recovery anyway; it’s just that it will not live up to hopes or expectations. Since it is doubtful the overhang of distressed houses will be alleviated anytime soon and housing construction will not soar until that happens, we need to get used to what the economy is capable of and that, unfortunately, is only moderate growth.
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 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.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

July Existing Home Sales

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

INDICATOR: July Existing Home Sales
KEY DATA: Sales: -3.5%; July ’10-July ’11: +21%

IN A NUTSHELL: “”Housing continues to wander aimlessly along despite historically low mortgage rates.”

WHAT IT MEANS: The housing market is still not showing any signs that it is gaining traction. The National Association of Realtors reported that existing home sales fell in July as a large decline in the West offset modest increases in demand in the Northeast and Midwest. There was a small drop in the South. Condo sales are holding up but the stressed out, foreclosure dominated single-family segment continues to drop. Prices are easing as well but some of that may be the continued impact of distressed homes rather than the give and take of buyers and sellers for non-distressed homes. Sellers are recognizing the problems in moving homes by holding houses off the market and the inventory is falling.

MARKETS AND FED POLICY IMPLICATIONS: The Realtors commented, as have most observers of the market, that the appraisal process is causing negotiated deals to fail. If the contract price is not supported by appraisals, which may be affected by distressed homes and limited realistic comparisons, the mortgage will not be written. Only the best borrowers are getting mortgages and that is not enough to drive the market forward. Anyone who has tried to refinance lately, and I am one of those people, know how ridiculous the appraisal process can be. During the bubble, every home seemed to meet the appraisal standard and that ebullience help inflate the bubble. Now we have the opposite where it is frequently impossible for sellers to get a reasonable price even when buyers are willing to pay that price. And with banks so worried about loans failing, the conservative nature of the lending process is and will continue to limit the ability of the housing market to recover. This report, coupled with a rise in inflation, a jump in unemployment claims and a sharp drop in the Philadelphia Fed’s regional survey is only adding to the worries about Europe. European growth is faltering as the cure for their debt and deficits issues is killing growth. But that is no surprise. In the short term, budget cuts reduce economic growth and that is happening with a vengeance in a number of European nations. So why are so many people surprised when European growth numbers are weak? Got me. But that slowdown has implications for the rest of the world, especially if some European banks run into trouble. U.S. banks are linked to European banks and that creates worries that the financial sector will be hit again. That hurts confidence about future U.S. growth. Still, a double-dip recession is hardly baked in the cake and I will remind people that Wall Street and Main Street are not one and the same anymore.
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 Consumer Price Index

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

INDICATOR: July Consumer Price Index
KEY DATA: CPI: +0.5%; Excluding Food and Energy: +0.2%

IN A NUTSHELL: “There is no rest for the consumer as prices are rising for a wide variety of goods and services.”

WHAT IT MEANS: Once again, the consumer was pushed to the wall by rising retail costs. The Consumer Price Index jumped in July and the increases were pretty much across the board. Gasoline was a major component of the gain but that is unwinding big-time in August. However, food costs just keep increasing. Over the year, food expenses are up in excess of 4% and that is not making the weekly trip to the supermarket very pleasant. Housing rose moderately but we are beginning to see the impact of rent increases. Educational establishments remain in their own world as tuition continues to skyrocket. I cannot wait until my son finally graduates, even if he winds up moving back home. But the strangest situation is in clothing. There was a third consecutive 1% or more monthly increase and over the past three months prices have surged at a 16.4% annualized rate. Apparel has been a moderating influence on overall inflation for years and if we are entering a period of rising prices inflation will be elevated for quite some time. We did see the usual declines in communications and computers while medical care expenses continue to rise at a surprisingly moderate pace.

MARKETS AND FED POLICY IMPLICATIONS: The rise in consumer costs is distressing. It’s bad enough that workers are not getting any pay increases but the surge in retail prices is cutting into spendable income. Inflation-adjusted weekly earnings fell in July and are down by 1% over the year. That is one big reason that consumption is so sluggish. The choice is to spend less or save less and in these uncertain times we know which direction households are going. As for the Fed, the core index, which removes food and energy, is nearing the upper bound of its desired range and is likely to be breached in the fall. Worse, the situation with food is not transitory. There is little reason to think food costs will ease sharply and in the long run as millions of people move into the middle class in the developing nations, the outlook for food is for higher than average inflation. The Fed should keep food in its core index and only exclude energy. The Fed’s bet on low inflation looks like a loser even if the top line number comes way down over the next few months due to the falling energy costs. Core prices are on the rise. But Mr. Bernanke has wedded himself to a two year process so inflation over the next few months is not likely to have any impact on Fed policy. In the long run, though, we are likely to be in for a bought of higher than desired inflation, something the inflation hawks will be chirping about and rightfully so. As for investors, right now it’s all about Europe though and report cannot ease any fears.

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 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