Housing Construction Boosted By Low Rates

Posted on February 16, 2017 by Popular Economics Weekly

The Mortgage Corner

Housing starts returned to trend, reports the National Association of Home Builders, dropping 2.6 percent to a seasonally adjusted annual rate of 1.246 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Multifamily production fell 10.2 percent to 423,000 units after an unusually high December 2016 reading, whereas single-family starts ticked up 1.9 percent to 823,000 units.

But year-on-year both components are very positive, up 6.2 percent for single-family homes and at a very strong 19.8 percent for multi-units. And with interest rates still at historical lows, 2017 should be a very good year for new-home starts and sales.

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Graph: Calculated Risk

“Some pull back in housing production is unsurprising after an overly strong multifamily reading last month,” said NAHB Chief Economist Robert Dietz. “As we move forward in 2017, we can expect the multifamily sector to continue to stabilize and single-family production to move forward at a gradual but consistent pace.”

Regionally in January, combined single- and multifamily housing production rose 55.4 percent in the Northeast and 20 percent in the South. Starts fell by 17.9 percent in the Midwest and 41.3 percent in the West, where skyrocketing housing prices have slowed sales.

Speaking of the western region, the California Association of Realtors reports rising wages and seasonal price declines held California’s housing affordability steady in fourth-quarter 2016, even while interest rates rose moderately.

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in fourth-quarter 2016 remained at 31 percent, unchanged from the third quarter of 2016 but was up from 30 percent in fourth-quarter 2015, according to C.A.R.’s Traditional Housing Affordability Index (HAI).

This is the 15th consecutive quarter that the index has been below 40 percent and is near the mid-2008 low level of 29 percent. California’s housing affordability index hit a peak of 56 percent in the third quarter of 2012, when both housing prices and interest rates were lower.

I project that mortgage rates will remain low, in what is becoming an interesting anomaly. Mortgage rates have fallen of late, while Treasury bond yields have been rising in anticipation of rising inflationary pressures if Republicans do increase federal spending.

Per Market Watch, Sean Becketti, chief economist of Freddie Mac, said something unusual is going on — the 30-year mortgage isn’t moving in line with the yield on the benchmark 10-year Treasury, as it has for the past 46 years.

Since Dec. 29, the 30-year has dropped 17 basis points, but the yield on the 10-year bond has stayed the same, he says. “While we expect mortgage rates to fall into line with Treasury yields shortly, this just may be a year full of surprises,” he said.

Mortgage rates slipped for a second week even as they retain most of the rise since Donald Trump was elected president, but not much. The 30-year fixed conforming rate is still at 3.75 percent for 1 origination point, 4.0 percent with no origination points.

Why? Banks are flush with cash and investors are snapping up mortgage-backed securities in search of higher yields. And while Fannie Mae and Freddie Mac continue as US Treasury wards, they provide as much security as Treasury bonds, but with a much better yield.

Just do the numbers—30-year Treasury yields have hovered around 3 percent, vs. 3.75 to 4 percent yields on Fannie and Freddie mortgage-backed securities.

But the future of Fannie and Freddie are not certain. New Treasury Secretary Steven Mnuchin has said he would like to see the GSEs privatized. Economists have predicted that if that happened it could raise mortgage rates from 0.4 to as much as 1 percent.

That’s how valuable even an implicit government guarantee of such securities means, since banks would demand higher yields to be part of a consolidate secondary market. And let us not even try to imagine what life would be like for homeowners if Fannie Mae and Freddie Mac disappeared. They are responsible for more than 60 percent of all home mortgage originations at present.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Housing, housing market, Weekly Financial News | Tagged , , , , , , , | 1 Comment

Retail Sales and Consumer Prices Show Real Life

Posted on February 15, 2017 by Popular Economics Weekly

Financial FAQs

Retail sales rose 0.4 percent last month following a much bigger gain in December than originally reported, the government said Wednesday. Economists polled had forecast a 0.2 percent increase. Retail sales are now up more than 5 percent annually, approaching more normal spending. December spending was also revised upward to 1 percent from an already strong 0.6 percent.

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Graph: Econoday

And gas prices are rising along with consumer spending, which is boosting retail prices. The headline year-on-year Consumer Price Index, reflecting easy energy comparisons with 2016, is moving higher, well above the Fed’s general 2 percent target at 2.5 percent. This is up 4 tenths in the month and is the highest in nearly 5 years. The core rate is also up, at a year-on-year 2.3 percent for a 1 tenth gain.

This shows an economy returning to a more normal 3 percent GDP growth rate, as well. The question now is what does this mean for jobs and the workers to fill them, as we are already near full employment.

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Graph: Econoday

Every major retail sector reported higher sales except for auto dealers, whose business tends to tail off after the Christmas shopping season. Auto purchases account for about one-fifth of all retail spending. And if autos and gasoline are excluded U.S. retail sales rose a robust 0.7 percent, the Commerce Department said.

Outlets such as Best Buy that sell electronics and appliances saw a 1.6 percent rise in sales, the largest gain in a year and a half. Stores that sell clothing and sporting goods also posted sales gains of 1 percent or more. Even department stores, whose sales fell sharply in 2016, got into the act. Department-store receipts surged 1.2 percent in January to mark the biggest increase in more than a year.

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Graph: NFIB

One clue to where additional jobs may come is the National Federation of Independent Business survey for small businesses, which account for more than 60 percent of the hires these days. And their confidence has soared since Donald Trump’s election with his promise of lower taxes and regulations.

A majority of small business owners are making no secret of their love for freer markets. “The continued surge in optimism is a welcome sign that economic growth is coming, said NFIB Chief Economist Bill Dunkelberg. “The very positive expectations that we see in our data have already begun translating into hiring and spending in the small business sector.” 

Job openings and job creation plans both posted small gains, pushing the NFIB Jobs Report into a strong, positive direction. Dunkelberg, as well said the data could signal higher GDP growth in 2017. 

The recent growth in optimism looks similar to the surge in the Index in 1983, which was followed by years of economic prosperity, said the NFIB. After eight years of struggling with government barriers, small business owners are hopeful that policy proposals from the new administration and Congress will spur economic growth in a similar manner, said NFIB President and CEO Juanita Duggan.

However, one still uncertain factor is the direction of interest rates. Both mortgage rates and Treasury yields are still at historic lows, but how long will that last with faster growth?

Fed Chair Janet Yellen surprised markets with her congressional testimony yesterday when she told lawmakers that waiting too long to raise interest rates would be “unwise.” This comment, along with assurances that the Fed will raise rates at one of its coming meetings, inspired a sharp selloff in Treasury securities. Bond yields rise as prices fall.

The yield on the 10-year Treasury note rose five basis points to 2.52 percent today, while the yield on the two-year note gained 3.3 basis points to 1.27 percent. The yield on the 30-year Treasury bond rose 4.8 basis points to 3.10 percent. But these rates are still at historical lows, and would have to rise another 1 to 2 percent to accommodate inflation rates that have historically accompanied higher growth rates.

Harlan Green © 2017

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Let’s Make America More Equal Again!

Posted on February 13, 2017 by Popular Economics Weekly

 

workers

Popular Economics Weekly

As defeated Democrats mull over what slogan can equal or overcome President Trump’s “Make America Great Again”, I have a suggestion, one that might even enthuse populist Republicans. Let’s make American more equal again, just as it was in the 1960s and 70s, when we had a thriving middle class in which its children could hope to exceed their parents’ station in life.

After all, it was our thriving middle class that kept the more extreme elements of both political parties and persuasions at bay, so that Republicans and Democrats actually talked to each other. And a middle class will only thrive where there is less income inequality, something that most well-meaning Americans support.

But that was then and we live in now, when most children of the baby boomers now retiring do not hope to do better than their parents. Household incomes have stagnated since the 1970s, and the top income earners since the Great Recession now have garnered almost all of the increase.

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Graph: Gallup poll

That is why two out of three Americans are dissatisfied with the way income and wealth are currently distributed in the U.S. This includes three-fourths of Democrats and 54 percent of Republicans, according to a recent Gallup poll.

The Great Recession was brought on by Wall Street’s excesses, and the deregulation boom of the Clinton and GW Bush presidential reigns. So why not create programs that Make America More Equal Again?

 

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Graph: Saez-Piketty

Overall, the share of Americans living in middle-class households has declined from 61 percent in 1971 to 50 percent, reports a recent Pew Research study. The hollowing out of the middle class has been a source of consternation among many economists, politicians and the public at large, says those surveyed. They say as Americans move toward the economic extremes it is harder to find common ground, and a common sense of what it means to be an American.

Much of that inequality is in the Midwestern rust belt states that lost those blue collar manufacturing jobs during the globalization and multi-nationalization of US corporations that President Trump promised to bring back again.

So President Trump was no dummy in recognizing this fact. Then how could Democrats be so blasé and oblivious to this fact among their former supporters? Everyone saw it coming; the disenfranchisement of whole segments of working class voters that had descended into depression and drug use in those formerly blue and Democrat-voting states.

There have been many suggestions of how to bring back higher-paying jobs, but candidate Trump seems to have fastened on just three—building more infrastructure, destroying multi-lateral trade agreements like the TPP and NAFTA, as well as limiting immigration inflows to make more jobs available to those suffering American workers.

The first suggestion has been backed by both Democrats and Republicans, and now that President Trump wants it Republicans will stop opposing infrastructure spending, even if it busts the federal budget.

However, building more immigration and trade barriers won’t create greater equality, nor will opposition to minimum wage laws, such as advocated by the Trump pick for new Labor Secretary—CEO of fast food chains Andrew Puzder. Because most immigrant jobs are low-paying, jobs that Americans don’t want anyway. And higher trade barriers for the purpose of bringing jobs home will raise the prices of imported goods, cancelling out much of the income boost from higher-paying jobs.

What won’t work either is the blatant voter and collective bargaining-suppression laws enacted, or about to be enacted in the 25 all-red states with absolute Republican majorities. Such a blatant suppression of minority voters and the wages of working class Americans will suppress their wages, hardly the road to greater equality.

What also won’t work are the attempts to destroy Obama’s Affordable Care Act that have boosted the buying power of at least 20 million working class voters by reducing overall medical costs, as well as Dodd-Frank regulations that have suppressed some of the excessive profit-taking of Wall Street at the expense of State Street.

The same poll updated a long-time Gallup trend, finding that 54 percent of Americans are satisfied, and 45 percent dissatisfied, with the opportunity for an American “to get ahead by working hard.” This measure has remained roughly constant over the past three years, but Americans are much less optimistic about economic opportunity now than before the recession and financial crisis of 2008 unfolded. Prior to that, at least two in three Americans were satisfied, including a high of 77 percent in 2002.

So there are many reasons for Democrats and even truly populist Republicans to support programs that increase income equality. But they can’t be about building more walls. A robust and more politically temperate American middle class can only include Americans of all nationalities and ethnicities.

Harlan Green © 2017

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Surging Construction Sector Aids Home Sales

Posted on February 7, 2017 by Popular Economics Weekly

image

The Mortgage Corner

Construction payrolls were a positive surprise of the January employment report, rising 36,000 for the best gain since March. Construction was soft through most of last year though it did pick up at year end.

And this is why Pending and New-home sales are doing so well. Overall construction spending fell 0.2 percent in December but spending on new single-family homes rose 0.5 percent in the month with multi-family spending up 2.8 percent.

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Graph: Econoday

This is why sales of newly built, single-family homes rose 12.2 percent in 2016 to 563,000 units, the highest annual rate since 2007, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Only public construction spending fell a sharp 1.7 percent in the month. Educational spending fell 2.2 percent with highways & streets down 0.6 percent. Private nonresidential categories (ie, commercial) are mixed with total spending for this component unchanged in the month.

“We are encouraged by the growth in the housing sector last year, and by the fact that builders increased inventory by 10 percent in anticipation of future business,” said Robert Dietz, chief economist of the National Association of Home Builders (NAHB). “NAHB’s forecast calls for continued upward momentum this year, with housing starts expected to rise 10 percent over the course of 2017.”

The inventory of new home sales for sale was 259,000 in December, which is a 5.8-month supply at the current sales pace, an improvement from the 5 percent range most of last year. The median sales price of new houses sold was $322,500, up from.

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Graph: Trading Economics

That is why housing starts, or construction, is so important in building up inventories depleted by the Great Recession. Starts jumped 11.3 percent from the previous month to a seasonally adjusted annualized rate of 1226 thousand in December of 2016, beating market expectations of 1200 thousand. Multi-segment starts rebounded while single-family declined for the second month. Considering full 2016, housing starts rose 4.9 percent to 1166.4 thousand.

“This report represents firm growth for housing in 2016, as single-family starts rose 9 percent and multifamily production was down slightly,” said NAHB Chief Economist Robert Dietz. “We expect that 2017 will be another year of gradual, steady improvement in the housing market. Multifamily starts have been volatile in recent months, but should level off as supply meets demand. Meanwhile, single-family production continues to gain momentum but is limited by supply-side headwinds.”

So housing construction is returning to normal times. Starts in the United States averaged 1438.64 thousand from 1959 until 2016, reaching an all-time high of 2494 Thousand in January of 1972 and a record low of 478 Thousand in April of 2009.

Harlan Green © 2017

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Homeland Security Obeys Court Order to lift Trump Travel Ban

Posted on February 4, 2017 by Popular Economics Weekly

image

Popular Economics Weekly

It is a well-known fact that the US has had a history of labor shortages, dating from the Revolutionary War. Colonial America was defined by a severe labor shortage that employed forms of unfree labor such as slavery and indentured servitude and by a British policy of benign neglect (salutary neglect). Over half of all European immigrants to Colonial America arrived as indentured servants, says Wikipedia.

Then why would the Trump administration enact an immigration ban on seven primarily Moslem countries, when we need all the immigrants we can import to fill the 5.5 million job openings that remain unfilled, as well as find the workers for his promised $1 trillion in infrastructure projects?

Hence the need and tradition of immigrants adding new blood and man (and women) power to our workforce. The colonies were also characterized by religious diversity, with many Congregationalists in New England, German and Dutch Reformed in the Middle Colonies, Catholics in Maryland, and Scots-Irish Presbyterians on the frontier. Sephardic Jews were among early settlers in cities of New England and the South. Many immigrants arrived as religious refugees: French Huguenots settled in New York, Virginia and the Carolinas. Many royal officials and merchants were Anglicans.

They need to come from all religions, in other words, particularly Islam, which is the third most populous religion with 1.6 billion practitioners

So when will the Trump team get that message, especially after contempt citations are already being filed as he defies the latest court injunctions against his temporary travel ban?

At least one contempt of court citation has been filed against President Donald Trump and another is likely to be submitted on Friday, charging that the administration has defied court orders by denying entry to the United States by an untold number of immigrants from seven predominantly Muslim countries.

The Commonwealth of Virginia filed its contempt motion late Wednesday night in Alexandria federal court. Meanwhile, an attorney who is trying to assist more than 200 Yemenis in gaining entry into this country said Thursday that her office will file a contempt motion of its own on Friday in U.S. District Court in Los Angeles.

“The Trump administration is acting as if he is running a dictatorship,” attorney Julie Ann Goldberg said in a telephone interview from Djibouti, where her clients are being held in transit. “It’s as if he has forgotten there are three branches of government in this country and has totally disregarded any judicial order. He is ignoring them across the country.”

Judges in Brooklyn, Boston, Alexandria, Va., and Seattle, as well as two more in Los Angeles have issued orders to stop the government from carrying out the executive order Trump signed last Friday that suspended for 90 days the issuance of visas to people from seven countries deemed by the U.S. government to present a terrorist threat. They are Syria, Libya, Sudan, Iran, Somalia, Iraq and Yemen. The president’s executive order also suspended refugee admissions from all countries for 120 days.

Federal officials have issued statements saying that they are taking steps to “immediately” comply with the court orders. As of Thursday, the government had recommended denials of boardings to 1,136 immigrants with visas or other documents who sought entry into the United States, while they had granted waivers to 87 immigrants. Restrictions appear to have been lifted nationwide on lawful permanent residents of the United States, some of whom had difficulty gaining entry into the country in the earliest stages of the order’s rollout.

And now we have the revelation that more than 100,000 entry visas were revoked in the middle of the night, without notifying the courts or agencies that are involved. But because a Washington State Federal Judge has granted a nationwide injunction to lift the travel ban, the Department of Homeland Security has just announced it has suspended all actions to implement the immigration order and will resume standard inspections of travelers as it did prior to the signing of the travel ban.

Also, a State Department official tells CNN the department has reversed the cancellation of visas that were provisionally revoked following the President’s executive order last week — so long as those visas were not stamped or marked as canceled.

Harlan Green © 2017

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A Yuge Jobs Gain Today

Posted on February 3, 2017 by Popular Economics Weekly

Popular Economics Weekly

The U.S. created 227,000 new jobs in January to mark the largest gain in four months, revealing an economy that has plenty of stamina nearly eight years into a recovery that shows little sign of ending. Retailers, construction firms, financial companies and restaurants led the way in hiring in January, the government said Friday.

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Graph: Marketwatch

The unemployment rate rose slightly to 4.8 percent last month, mostly because more people were looking for work, but there is a skills gap with most of the unemployed blue collar workers needing job retraining, rather than additional coal and manufacturing jobs the Trump team is hoping to generate. Job openings are near their record high and that’s drawing a larger share of Americans back into the labor force.

This is while a tighter labor market is also forcing firms to pay more to workers, an emerging trend that’s likely to further underpin the recovery. In January, hourly wages rose 0.1 percent to $26 an hour. Over the past 12 months wages have climbed 2.5 percent—faster than the less than 2 percent annual gains that prevailed through most of the recovery.

What does this mean? Maybe some of those unfilled 5.55 million job openings will be filled. But only if the courts lift the immigration ban that will discourage the influx of skilled workers to fill those jobs, as the Trump administration seems caught in the grips of white nationalist wall-builders, at the moment, such as Steven Bannon, who are very unskilled at writing Executive Orders, it seems.

Chaos is reigning over the immigration ban, at the moment. The global confusion that has since erupted is the story of a White House that rushed to enact, with little regard for basic governing, a core campaign promise that Mr. Trump made to his most fervent supporters, reports the New York Times. In his first week in office, Mr. Trump signed other executive actions with little or no legal review, but his order barring refugees has had the most explosive implications.

Passengers were barred from flights to the United States, customs and border control officials got instructions at 3 a.m. Saturday and some arrived at their posts later that morning still not knowing how to carry out the president’s orders.

Back to the jobs report, there was a huge surge in retail payrolls (46,000), professional services (39,000), and construction jobs (36,000), signaling real estate is still strong, with interest rates still near their record lows.

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Graph: Econoday

More big news was that the service sector is still booming, though it dropped slightly in January. The ISM non-manufacturing, or service sector index “The NMI® registered 56.5 percent which is 0.1 percentage point lower than the seasonally adjusted December reading of 56.6.

Both prices and employment jumped 2.9 and 2.0 percent, respectively, again signaling a tighter labor market. The sector that includes Health Care & Social Assistance; Finance & Insurance; Public Administration; Accommodation & Food Services; Retail Trade; Construction; still reflects strong growth.

“This represents continued growth in the non-manufacturing sector at a slightly slower rate,” said Anthony Nieves, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. “Respondents’ comments are mixed indicating both optimism and a degree of uncertainty in the business outlook as a result of the change in government administration.”

So this uncertainty is another reason to cancel or modify Trump’s immigration ban, as it hurts more than the seven Muslim countries. Scientists worldwide are now cancelling their participation in US scientific conferences in protest.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Uncategorized | Tagged , , , , , | Leave a comment

A Yuge Jobs Gain Today

Posted on February 3, 2017 by Popular Economics Weekly

Popular Economics Weekly

The U.S. created 227,000 new jobs in January to mark the largest gain in four months, revealing an economy that has plenty of stamina nearly eight years into a recovery that shows little sign of ending. Retailers, construction firms, financial companies and restaurants led the way in hiring in January, the government said Friday.

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Graph: Marketwatch

The unemployment rate rose slightly to 4.8 percent last month, mostly because more people were looking for work, but there is a skills gap with most of the unemployed blue collar workers needing job retraining, rather than additional coal and manufacturing jobs the Trump team is hoping to generate. Job openings are near their record high and that’s drawing a larger share of Americans back into the labor force.

This is while a tighter labor market is also forcing firms to pay more to workers, an emerging trend that’s likely to further underpin the recovery. In January, hourly wages rose 0.1 percent to $26 an hour. Over the past 12 months wages have climbed 2.5 percent—faster than the less than 2 percent annual gains that prevailed through most of the recovery.

What does this mean? Maybe some of those unfilled 5.55 million job openings will be filled. But only if the courts lift the immigration ban that will discourage the influx of skilled workers to fill those jobs, as the Trump administration seems caught in the grips of white nationalist wall-builders, at the moment, such as Steven Bannon, who are very unskilled at writing Executive Orders, it seems.

Chaos is reigning over the immigration ban, at the moment. The global confusion that has since erupted is the story of a White House that rushed to enact, with little regard for basic governing, a core campaign promise that Mr. Trump made to his most fervent supporters, reports the New York Times. In his first week in office, Mr. Trump signed other executive actions with little or no legal review, but his order barring refugees has had the most explosive implications.

Passengers were barred from flights to the United States, customs and border control officials got instructions at 3 a.m. Saturday and some arrived at their posts later that morning still not knowing how to carry out the president’s orders.

Back to the jobs report, there was a huge surge in retail payrolls (46,000), professional services (39,000), and construction jobs (36,000), signaling real estate is still strong, with interest rates still near their record lows.

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Graph: Econoday

More big news was that the service sector is still booming, though it dropped slightly in January. The ISM non-manufacturing, or service sector index “The NMI® registered 56.5 percent which is 0.1 percentage point lower than the seasonally adjusted December reading of 56.6.

Both prices and employment jumped 2.9 and 2.0 percent, respectively, again signaling a tighter labor market. The sector that includes Health Care & Social Assistance; Finance & Insurance; Public Administration; Accommodation & Food Services; Retail Trade; Construction; still reflects strong growth.

“This represents continued growth in the non-manufacturing sector at a slightly slower rate,” said Anthony Nieves, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. “Respondents’ comments are mixed indicating both optimism and a degree of uncertainty in the business outlook as a result of the change in government administration.”

So this uncertainty is another reason to cancel or modify Trump’s immigration ban, as it hurts more than the seven Muslim countries. Scientists worldwide are now cancelling scientific conferences in the US in protest.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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Private Payrolls, Consumer Confidence Signal Strong January

Posted on February 2, 2017 by Popular Economics Weekly

Popular Economics Weekly

ADP is calling for substantial strength in Friday’s employment report, showing yesterday 246,000 for private payrolls, not including government jobs. This is far beyond expectations and would compare with December private payroll growth in the government’s report of 144,000 (ADP’s count for December is revised slightly lower to 151,000).

Yesterday’s data follow positive employment indications in Tuesday’s consumer confidence report and may very well pull expectations higher for Friday’s employment report, says Econoday.

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Graph: Econoday

And the Conference Board’s consumer confidence survey showed further consumer strength. Consumer confidence held strong and steady in January, at 111.8 for only a slight decrease from December’s 15-year high of 113.3 (revised), said the Conference Board. Details are positive including a noticeable decline in those saying jobs are hard to get right now, at 21.5 percent vs December’s 22.7 percent, combined with a solid rise in those who say jobs are plentiful, at 27.4 vs 26.0 percent.

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Then we also have the ISM manufacturing index back to post-recession highs. The ISM manufacturing report out Wednesday, in line with a run of regional reports, is signaling the strongest conditions in the factory sector since the oil-price collapse of 2014. The composite index for January is 56.0 for a sizable 1.5 point gain and the highest reading since November 2014.

New orders at 60.4 vs 60.3 in December is also a high since November 2014 and is the first back-to-back 60 showing since December 2013. Employment is also strong, up a sharp 3.3 points to 56.1 for the highest reading since August 2014. Inventories are steady as are delivery times which have been slowing in line with rising activity. Input costs are showing increasing pressure, in line with rising costs in other anecdotal reports.

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Graph ISM

So what have we for economic prospects in the Trump era? A lot will depend on the markets confidence that the Trump team can follow through on its promises. But limiting immigration when the economy is basically fully employed is not a recipe for further growth, because where will the workers come from to build all those infrastructure projects, for instance?

Probably from overseas. Or maybe from some of the unemployed blue-collar workers that don’t have the skills in today’s high tech economy. Though housing construction is rising, public construction spending fell a sharp 1.7 percent in the month. Educational spending fell 2.2 percent with highways & streets down 0.6 percent. Private nonresidential categories are mixed with total spending for this component unchanged in the month.

Also, where will the additional monies come from to finance those Trump projects?

Harlan Green © 2017

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Pending Home Sales—Case-Shiller Prices Higher

Posted on January 31, 2017 by Popular Economics Weekly

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The Mortgage Corner

Pending home sales picked up in December as solid increases in the South and West offset weakening activity in the Northeast and Midwest, according to the National Association of Realtors®. And the S&P Case-Shiller Home Price Index of same existing-home prices continued to rise more than inflation, signaling a housing shortage still exists.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 1.6 percent to 109.0 in December from 107.3 in November. With last month’s uptick in activity, the index is now 0.3 percent above last December (108.7). Pending sales have been this active since 2015, really, which in turn has stimulated housing construction, mostly on the high end.

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Graph: NAR

Lawrence Yun, NAR chief economist, says contract activity was mixed throughout the country in December but ultimately ended on a high note to close out 2016. “Pending sales rebounded last month as enough buyers fended off rising mortgage rates and alarmingly low inventory levels to sign a contract,” he said. “The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”

And national home price gains maintained momentum in November, two months after retaking the high last seen at the height of the housing bubble, according to Case-Shiller.

The S&P/CoreLogic Case-Shiller 20-city index rose 5.3 percent compared to a year ago for the three month period ending in November, an acceleration from the 5.1 percent increase notched in October. The national price index rose 5.6 percent for the year, up from 5.5 percent in October, and a yuge seasonally adjusted 0.8 percent for the month. Among the 20 cities, Seattle, Portland and Denver continued to see the strongest price gains.

According to Yun, a large portion of overall supply right now is at the upper end of the market, as we said. This is evident by looking at December data on the year-over-year change in single-family sales by price range. Last month, sales were up around 10 percent compared to December 2015 for homes sold at or above $250,000, while homes sold between $100,000 and $250,000 only increased 2.3 percent. Meanwhile, sales of homes under $100,000 were down 11.6 percent compared to a year ago.

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Graph: NAR

This could be because mortgage rates have risen, though a 30-year fixed conforming rate is still 4.0 percent for one origination point in California. This is approximately 0.75 percent higher that the record lows of last yar.

“The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most,” said Yun. “As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41 percent cumulative rise in existing home prices since 2011.”

Metro

Monthly Case-Shiller

12-Month Change

Atlanta

0.0%

6.1%

Boston

0.4%

5.5%

Charlotte

0.3%

5.9%

Chicago

-0.8%

4.0%

Cleveland

0.0%

3.8%

Dallas

0.2%

8.1%

Denver

0.6%

8.7%

Detroit

-0.1%

6.6%

Las Vegas

0.3%

6.0%

Los Angeles

0.2%

5.5%

Miami

0.5%

6.1%

Minneapolis

0.1%

5.5%

New York

0.4%

2.4%

Phoenix

0.3%

5.2%

Portland

0.2%

10.1%

San Diego

0.3%

5.8%

San Francisco

-0.1%

5.3%

Seattle

0.2%

10.4%

Tampa

0.8%

8.1%

Washington

0.2%

3.7%

Harlan Green © 2017

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Q4 GDP Slightly Lower—How About 2017?

Posted on January 30, 2017 by Popular Economics Weekly

Financial FAQs

Fourth quarter Gross Domestic Product growth slowed, mostly because of the strong dollar and weak foreign demand. But consumers held up their end with higher consumer sentiments, and businesses also began to invest in new plants and equipment again.

One reason for the weakness is surging domestic demand for imported goods, because consumers are buying lots of goods and services. So all-in-all, the U.S. economy is doing very well, with interest rates still low and domestic demand still strong.

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Graph: Econoday

Gross domestic product, the official score card for the economy, expanded at a 1.9 percent annual clip from October to December, the Commerce Department said. That’s a marked drop from a 3.5 percent growth rate in the third quarter and below the 2.2 percent consensus of Bloomberg. The drop was mainly because of lower exports (strong dollar) and higher imports, which are a subtraction in the calculation of GDP, increased.

Still, the increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending.

And we have soaring consumer sentiment, as the University of Michigan Consumer Sentiment survey is now at 98.5 in January, at the cycle highs where it’s been since the November election. Prospects for future income are the highest in a decade, though the sample is split between optimism among Republicans offsetting pessimism among Democrats. One fifth of the sample says it’s a good idea to borrow in advance of possible rate increases, a 20-year high for this reading.

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Graph: Econoday

But the real hero of the week was durable goods orders for goods lasting more than 3 years, such as auto, appliances and aircraft. Even though December orders, pulled down by a swing lower in defense aircraft, slipped 0.4 percent, core capital goods orders rose 0.8 percent which is on top of an upward revised 1.5 percent gain in November.

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Graph: Econoday

This is the sign of the increase in business investment in plants and equipment that will be sorely needed to increase productivity and so economic growth in 2017. Year-on-year core capital goods orders (nondefense ex-aircraft) moved into the plus column for the first time since October 2015, at 2.8 percent to exceed total orders at 1.2 percent. The graph tracks monthly dollar levels of core capital goods (at $64.5 billion in December) against all other durable goods (at $162.5 billion). This swing higher for capital goods has contributed to three straight quarters of gains, though small ones, for nonresidential investment in the GDP report. But progess is progess, says Econoday.

So we can only hope that President Trump doesn’t start too many trade wars, such as with Mexico, our third largest trading partner, if GDP growth is to improve from the past decade. For most of our exports and core capital goods depend on parts made elsewhere. We have a worldwide interconnected economy, in other words, which a trade war could harm greatly.

Harlan Green © 2017

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