November New Home Sales

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

INDICATOR: November New Home Sales
KEY DATA: Sales: 315,000 (up 1.6%); Nov ’10-Nov ‘11: +9.8%

IN A NUTSHELL: “The choices may be limited but the sale of new homes is moving up anyway.”

WHAT IT MEANS: After falling apart in the summer of our discontented Congress, new home sales have been on a steady upward climb. The November pace was just about at its highest level this year. The October number was revised upward and if that happens with November, we could see the rate break that high. Still, the level is ridiculously low and is about one-quarter the pace hit at the peak of the boom. The current sales pace needs to more than double before we can say that demand is decent. With so many distressed homes on the market, developers are “building down”, constructing smaller homes so the price continues to fall. At the same time, though, the supply is being kept under control. Indeed, the number of homes for sale hit the lowest level in the forty nine year history of the data.

MARKETS AND FED POLICY IMPLICATIONS: The recovery in the housing market is under way but it is also glacial. There is not much hope for the new construction segment of the market as long as the overhang of distressed homes remains so high. Still, up is better than down and the remaining builders are probably seeing better sales, at least compared to last year. In any event, it’s time to do some food shopping for the weekend so let me say to all:
Happy Holidays
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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November Employment Situation

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

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

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

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

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

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

November 2, 2011 FOMC Decision

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

November 2, 2011 FOMC Decision

“…economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year.”

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

The FOMC ended its two-day meeting with a lot of information. The Committee released its usual statement, an updated economic forecast that took us through 2014 and Mr. Bernanke met the press to answer questions. When all was said and done, we discovered that the Fed thought things got a little better in the fall, the outlook for the future was still somewhat bleak and even lower than the June forecast and the Committee, according to Mr. Bernanke, had everything on the table if conditions didn’t improve.

Let’s start with the statement. The only real change came in the description of the economy. Instead of talking about “continued weakness” there was now a reference to a somewhat stronger growth rate. Of course, the members did note that “recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated”, so you can say that the perception is still of an underperforming economy.

The FOMC did not indicate it would do anything in addition to its current “maturity extension” program commonly referred to as “operation twist”. However, during the press conference, Mr. Bernanke made it clear that additional actions would be taken if necessary. That is not likely to occur anytime soon. However, since the outlook is for the unemployment rate to remain elevated through 2014, it would not be a major surprise if there was another round of quantitative easing. I don’t expect that to happen as I believe growth will be decent enough for the Fed to not have to throw another policy against the wall and hope it sticks. Indeed, even with correct policy, long term growth is likely to be in the 2.2% to 3% range, according to the Fed’s latest forecast. That is less than many are hoping for and basically says that happy days are not going to be here for quite some time.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

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

March 15 2011 FOMC Decision

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

March 15 2011 FOMC Decision

“…the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually.”

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

Another FOMC meeting, another decision to do nothing. But that doesn’t mean there were not some interesting tidbits to glean from the comments made after the meeting. The Fed’s view of the economy is beginning to mirror reality as they have finally admitted conditions are indeed getting better. Now the “recovery is on firmer footing” rather than simply “continuing”, as was the view at the last meeting in January. In addition, instead of remarking about the disappointing job market, the Committee now believes it is improving. When you talk about the Fed, you have to remember that small word changes mean something so the modification in verbiage about the labor market does indicate a recognition that conditions are changing.

Another very interesting alteration was in the discussion about inflation. While the members did not even hint that they were worried about accelerating price increases, they did talk about it. If you are going to change behavior, it is good to discuss the situation first and that seems the case. No, the Fed is not going to raise rates very soon because the members fear that inflation is out of hand even though they did remark that “commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks.” They still stick to the belief that “longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.” Recovering addicts take time to fully kick the habit but they have given warning that they are no longer blind to the issues. That may have been enough to get a unanimous vote as even the inflation hawks supported the stance. That was true in spite of the reaffirmation of the decision to continue the second round of quantitative easing. QE2 is going to be completed but what comes next is about as clear as what will happen in North Africa, the Middle East and oil prices. In other words, you tell me and I will tell the Fed and then everyone will know.

Basically, there was every reason for the Fed to maintain its current stance. With political uncertainties creating pressures on oil prices and with the earthquake and tsunami rocking Japan, this was hardly the time to start even talking about tightening. Mr. Bernanke has been arguing that the Fed must make sure the recovery succeeds and recent events show that his counsel has made sense.

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

February Employment Report

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

INDICATOR: February Employment Report

KEY DATA: Payrolls: 192,000; Private Sector: 222,000; Unemployment

Rate: 8.9% (down 0.1 percentage point)

IN A NUTSHELL: “The labor market may not be great just yet but it is firming and that is good news for job seekers.”

WHAT IT MEANS: Economists always look forward to the employment report release and the wait was worth. The economy added jobs at a very solid pace in February powered by strong private sector hiring. The gains were widespread with manufacturing, services and even construction adding to payrolls. Retail was weak but some of that may have been due to the unseasonal as well as brutal weather in places. Normal early spring activity was likely put off. Firms are looking to temp workers again and that is a sign they are ready to get back into the hiring game. The weak link is the state and local government sector, education in particular. Apparently, the path toward global economic domination is through cuts in the education system. And I always thought education was a fundamental part of the nation’s infrastructure. Silly me. Hours worked increased as did wages, though hardly as fast as inflation. Income may be up but when adjusted for the surges in food, energy and other goods it is likely to be down. The best news in the report was the drop in the unemployment rate, to the lowest level since April 2009. I had been expected it to rise as discouraged workers come back into the workforce. But while the labor force did rise, more jobs were created so the rate went down. Don’t be surprised if we get periodic up ticks in the rate going forward as there are lots of dropouts who are likely to show back up over the next couple of years.

MARKETS AND FED POLICY IMPLICATIONS: This was a very good report that indicates the labor market is coming back. Yes, some of the rise can be ascribed to a rebound from the desultory January increase. Last month’s gain was revised upward but 73,000 is still not a great number. In addition, since a job is a job is a job, the cuts in the public sector have to be replaced before any economy-wide payroll increase can occur so the pressure is even greater on the private sector to hire more robustly. That is a concern as rising energy, food and other goods costs will likely slow growth during the first half of the year. Nevertheless, when you look at the totality of the economic data released this week, it is clear that the Great Recession is becoming a thing of the past. Unfortunately, the Great Recovery is not here and indeed may not happen as long as rising prices, limited credit availability, large numbers of foreclosures and high commercial vacancy rates constrain spending and construction. Those are the factors that seem to dominate Mr. Bernanke’s thinking and why he is so set on keeping rates low and liquidity high “for an extended period”, whatever that means. As for investors, it is oil vs. growth and petroleum may be the slippery slope that greases the wheels of a market correction (Sorry about that).

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

January 26, 2011 FOMC Decision

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist 

January 26, 2011 FOMC Decision 

“…the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.”

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

The FOMC met again and what they did for two days is anyone’s guess.  Clearly, even the wordsmiths at the Fed couldn’t have had their time completely taken up by the modest but hardly substantial changes in the statement.   The members noted at the start that “the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.”  That points up the continued obsession with jobs and the unemployment rate.  Until employment growth is clearly at a sustainable level that will reduce the unemployment rate, this Fed will be loathe to change policy.  But there were cautious views about consumer spending and business investment as well. 

 Once again, the Fed stated that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”   The basis for this stance remains the low inflation rate.  As long as the Committee can continue to write that “longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward”, there is little the inflation hawks can truly bleat about.  Of course that could mean a rise in core inflation would create some real issues for the FOMC.  So watch the core, regardless of your views on whether food and energy matter (I think they do) and if it starts to accelerate on a consistent basis, look for some of the members to start dissenting again. 

 As for the QE2, not surprisingly it is being continued and I expect the full $600 billion of purchases to be made.  But when we get to the late June meeting, the FOMC will have to deal with the completion of the program.  Don’t be surprised if there are no more purchases but the Committee continues “its existing policy of reinvesting principal payments from its securities holdings”.   In essence, stage one of the withdrawal of liquidity will come with the end of the quantitative easing program, state two will be the end of the reinvestment of principal and state three will be direct withdrawals of liquidity and rate hikes.  That last stage will not likely occur before late this year.

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