S&P Corelogic Case-Shiller HPI
The S&P Corelogic Case-Shiller Index is the leading measure of US home prices. Data released for March 2018 shows that home prices continued their rise across the country over the last 12 months in 20 main cities the index follows. On a year to year basis the index increased 6.8 percent in March, this no different from the year over gain seen in the month prior. The home price index is 7.8 percent higher than 2006’s peak, during the housing boom, prior to the housing market and economic crash. Homebuyers are paying a premium for home ownership as the number of properties up for sale declines and mortgage rates increase, up to a seven-year high. Prices are being driven entirely by the strong demand and extreme low level of inventory, especially at the entry level. Homebuilders have increased production steadily, yet supply is still well below historically normal levels and below home buyer demand. Sales listings over the past 12 months have declined 6.3 percent due to the number of sparse listings; listings on an annual basis have been declining for the past three years.
May’s consumer confidence bounced back in May and remains at historically strong levels. The consumer index rose to 128 from a revised level of 125.6 in April when a slight decline in confidence occurred on a monthly basis; as March fell to 125.6 from February’s 130.0, the highest reading in 18 years. The growth that occurred in April to May suggests steady growth in the months ahead and economic growth in the second quarter of the year, as it is likely to improve from the first quarter. The present situation index is a measure of current conditions, it climbed to a 17 year high of 161.7 from 157.5 in the month prior. Consumers were only slightly positive about the short-term outlook in May despite a small decline in percentage of consumers anticipating improvements in business conditions over the next six months. The outlook for the labor market was mixed, as the percentage of consumers expecting improved short-term income prospects declined. It was reported by the Commerce Department that US retail sales in April increased at a 0.3 percent rate. This is a sign consumers may be back after weak spending was recorded at the beginning of this year. Overall, however, confidence remains at historically strong levels and should continue to support solid consumer spending in the near term. The index measures American’s sentiment on current economic conditions as well as expectations for the next six months. Consumer spending accounts for about 70 percent of US economic activity.
Mortgage applications decreased 2.9% for its eight consecutive week of declines, even as interest rate decreased slightly. For the week ending in May 25th, the refinance share of mortgage applications decreased 5 percent from the week prior to its lowest level in 18 years. The refinance share decreased to 35.3% from the previous week’s 35.7%. The unadjusted purchase index also decreased, falling 3% from last week, but the seasonally adjusted purchase index dropped only 2% from last week and remains 2% higher from this time last year.
First quarter US GDP was revised to an annual rate of 2.2% according to the second estimate of GDP growth. It declined from the previous estimate of 2.3% growth. The general picture of economic growth remains the same, however, the new estimate reflects downward revisions to private inventory investment, residential fixed investment, consumer spending and exports that were partly offset by san upward revision to the nonresidential fixed investment sector. Recent tax cuts are expected to boost activity this year, however. Real GDP for the US increased 2.9% in the fourth quarter of 2017. There are signs GDP growth gathered momentum early in the second quarter with solid consumer spending, business investment on equipment and industrial production in April. The housing market, however, will prevent too big of an increase as it appears to have taken a further step back. Economists expect a $1.5 trillion income tax cut package, which came into effect in January, this will hopefully spur faster economic growth this year and lift the annual GDP growth close to the 3 percent target.
The Federal Reserve’s Beige Book in May showed an upbeat outlook for near term growth and a pick up in industrial activity in late April and early May. The members of the reserve stated the US grew moderately from late April to early May in its latest evaluation of the economy, indicating the central bank remains firmly on track to raise interest rates next meeting. In every region of the country, Fed officials characterized the economy as performing well with manufacturers raising production, banks reported stronger demands for loans, and home builders were very busy. A talent shortage is the biggest source of anxiety in the economy. Employers were especially having trouble finding truck drivers, electricians, carpenters, painters, and computer technicians. Despite these shortages in employment and rising costs for some raw materials such as oil and steel, inflationary pressures still appear subdued. The Beige Book confirms the US economy has improved since the first quarter and is on track to top the 3% goal in the spring of this year.
New applications for US unemployment fell more than expected last week. Initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 221,000 for the week ending in May 26th. Economists forecasted claims falling to 228,000 in the latest week. The labor market is viewed as being close to or near full employment. The jobless rate is near a 17 ½ year low of 3.9 percent, which is within striking distance of the Federal Reserve’s forecast of 3.8 percent by the end of this year. The four week moving average of initial claims rose 2,500 to 222,250 last week. The Fed reported that employers are having difficulty filling positions across skill levels where there were notable shortages in workers.
Personal Income & Outlays
Personal Income and Outlay report estimates income rose by $49.5 billion, or 0.3 percent in April; this is more than what was expected in the month. This is yet another sign that economic growth is regaining momentum early in the second quarter, while inflation continues to steadily rise. Economists forecasted consumer spending advancing 0.4 percent, as spending was boosted by purchases of gasoline and other energy products. Nondurable goods purchases increased 0.9 percent while outlays on services rose 0.5 percent lifted by the demand for household utilities. In April, personal income rose 0.3 percent after rising 0.2 percent in March. Wages increased 0.4 percent while savings fell to $419.6 billion last month from $445.7 billion in March. The savings rate dropped to 2.8 percent from 3.0 percent in March.
Pending Home Sales
Pending home sales, which measure signed contracts to buy existing homes, fell a to a lower than expected 1.3 percent compared to March. This was the third lowest level of the year. Pending sales were 2.1 percent lower compared to April of 2017 the fourth straight month showing an annual decline; this again is blamed on the continuing supply crisis in the housing sector. The demand for buying a home is very robust in today’s market. Listings are typically going under contract in under a month and instances of multiple offers are increasingly common pushing home prices even higher. Weakening affordability is going hand in hand with the short supply especially on the lower end of the market. As home prices continue to rise potential buyers have less room in their wallets. Mortgage rates jumped sharply in April, with the average rate on the conventional 30-year fixed rate mortgage at its highest level in seven years.
Total nonfarm payroll employment increased by 223,000 in May, and the unemployment edged down to 3.8 percent or 6.1 million. Employment continued to trend up in several industries including retail trade, health care, and construction. On a year on year unemployment rate was down by 0.5 percentage point and the number of unemployed persons declined by 772,000. The number of long term unemployed (those jobless for 27 weeks or more) was little changed at 1.2 million in May and accounted for 19.4 percent of the unemployed. Over the past year the number of long term unemployed has declined 476,000. Both the labor force participation rate, at 62.7 percent, and the employment population ratio at 60.4 percent changed very little in the month of May. The average workweek for all employees on private non-farm payrolls was unchanged at 34.5 hours in May, while average hourly earnings for all employees rose by 89 cents to $26.92. This is a yearly increase in earnings of 71 cents or 2.7 percent.
US construction spending rebounded more than expected in April as investment in private construction projects had its biggest gain since 2012 and offset a drop in the public outlays. Spending jumped more than economists’ expectations of a 0.8% increase, as expenditures were 1.8% higher in April compared to March. The April spending pace of $1.31 trillion, seasonally adjusted, was 7.6 percent higher than a year ago. While the monthly spending rates are often revised, expenditures for the first four months of the year are 6.6% higher than the same period in 2017. Private-sector expenditures rose 2.8% compared to March, while public sector spending fell. Residential construction spending was up 4.4 percent during the month and stood 9.7% higher than a year ago. April reversed the drop seen in March, but the most important thing seen here is the fifth 1% plus increase in the past six months. The strength is across the board in public and private, residential and commercial buildings with the state and local government sector being the only soft spot.