Economic Roundup 1-7-14General News:
Time for the monthly housing recap, where we put together all the housing data that came out in December:
+ The US Census Bureau Report on Put-in-Place Construction shows that construction spending during November 2013 was estimated at a seasonally adjusted annual rate of $934.4 billion, up 5.9% from the estimate from last year this time (up 1.0% month-on-month).
Through the first 11 months of 2013, construction spending was $828.4 billion, 5.0% higher than last year. (Remember the headline rate is the month’s construction rate projected over a 12 month period).
The Private Construction adjusted annual rate was up 8.6% from last year (up 2.2% from last month), at $659.4 billion, with residential construction up 16.6% from last year (up 1.9% from last month) and non-residential construction up 1.0% from last year (up 2.7% from last month).
The Public Construction adjusted annual rate was down 0.2% from last year (down 1.8% from last month) at $280.2 billion, with educational construction up 1.1% from last month and highway construction down 0.4% from last month.
Housing Construction Completions
[Construction spending continues to be up from last year, with large percentage gains being made by private residential construction, which is up a significant 16.0% year-on-year (up 17.10% not seasonally adjusted). Nonresidential construction was up only slightly year-on-year, with the biggest gains in lodging and biggest losses in power and communication.
It is interesting to note that although private residential single family construction dwarfs multi-family construction by a 5 to 1 margin, multi-family construction (apartments, condos, duplexes, etc.) is still up nearly nearly double the rate of single family construction (36.3%) year-on-year. Also, construction rates, while up recently, are significantly down in historical terms.
Private construction is up 17.1% year-on-year while public construction is down 2.7% year-on-year, not seasonally adjusted.]
+ The US Census Bureau report on New Residential Construction shows that:
Permits are down:
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,007,000. This is 3.1% below last month but is 7.9% above last year. Single family permits are up 2.1% on last month.
Starts are up:
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,091,000. This is 22.7% above last month, and is 29.6% above last year. Single family starts are up 20.8% on last month
Completions are down:
Privately-owned housing completions in August were at a seasonally adjusted annual rate of 823,000. This is 0.1% below last month and is 21.6% above last year. Single family completions are down 3.2% on last month.
[Permits are down, which implies a future decrease in starts and completions, although a permit does not mean an actual start will be performed. Starts are way up, but completions are slightly down. A surge in construction starts in late fall / early winter is not uncommon as builders want to get digging before the weather makes it too difficult (rough-ins and mechanical work can continue later, but the foundations need to be poured under certain conditions). However, this is a significant surge in starts year-on-year. Some people speculate that the Obamacare tax on housing sales might have an influence, as builders try to get in under the wire. ]
>< The US Census Bureau report on New Residential Sales shows that sales of new single-family houses in November were 464,000.
This is 2.1% lower than last month’s 474,000, but 16.6% higher than last year.
The seasonally-adjusted estimate of new houses for sale at the end of November was 167,000, indicating a supply of 4.3 months.
The median sales price of new houses sold in November 2013 was $270,900; the average sales price was $340,300.
Single Unit Housing Sales – Recent
Single Unit Housing Sales – Historical
[Housing sales are still up year-on-year, even though they are down month-on-month. In general, however, housing sales are still at historic lows, and, despite media claims otherwise, sales are relatively flat. While it is good to see that the market has leveled out over the past year, the fact is that the market is still stagnant, which is depressing construction due to the fact that existing inventory can’t clear. Efforts to keep home prices high, while benefiting current owners, is preventing potential new buyers from being able to afford to enter the market, even with low interest rate incentives. Until prices are allowed to drop, the market will stay locked into a holding pattern, as demand will stay lower than it could be, which will suppress the incentive to build more.]
>< The National Association of Home Builders Housing Market Index was released: Builder confidence in the market for newly built, single-family homes rose in December, to a level of 58, showing increased optimism by builders.
The index’s components all rose this month. The component gauging current sales conditions jumped 6 points to 64, while the component gauging sales expectations in the next six months rose by 2 points to 62, and the component gauging traffic of prospective buyers gained 3 points to 44.
Three-month moving averages for each region’s HMI score were mixed, but nearly even with last month, with the Northeast falling 1 point to 38, the West falling 1 point at 59, the Midwest down 1 point to 59, but the South up 1 point to 57.
(Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.)
[The level of home-builder optimism is increasing, much against what I would have thought. However, I suppose that this comes from an acceptance of the “new normal” in the housing industry. While I still think systemic problems still exist that are causing the market to stay depressed, the fact of the matter is that builders as entrepreneurs adjust their efforts to the conditions that are, not to the conditions as they want them to be. They, obviously, feel that the market has stabilized and will not decline further, so they are feeling better about their prospects for survival. I wonder what the sentiment will be over the next few months, as people reassess their income potential in the face of tax changes and increasing health care costs, changing their decisions on the affordability of a new home.]
>< The National Association of Realtors Pending Home Sales Index (an indicator based on contract signings and reflecting contracts, not closings) rose slightly to 101.7 in November from a downwardly revised 101.5 in October (2001 =100).
This number is only 0.2 points above last month, but is 1.6 points lower than last year, when it was 103.3.
Existing-home sales for 2013 are projected to have increased 10% over last year, but are expected to hold this sales level through 2014 before rising in 2015.
[Pending home sales continue to decline year-on-year and are flirting with rates equivalent to those back in 2001. This echoes the other housing data showing the market to be relatively flat.]
+ The National Association of Realtors Existing Home Sales Index reports that existing home sales declined again in November.
Total existing home sales (which are completed transactions that include single-family homes, townhomes, condominiums and co-ops) declined 4.3% to a seasonally adjusted annual rate of 4.90 million from last month’s revised 5.12 million, and are 1.2% below last year.
Rising mortgage interest rates and other declines in affordability, coupled with a slow recovery in construction rates (tight supply) are considered to be the factors that are holding sales down.
The median home price for existing homes was $196,300, up 9.4% over last year.
Total housing inventory at the end of November declined to 2.09 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace.
Distressed homes (foreclosures and short sales) accounted for 14% of November sales, unchanged from last month; they were 22% last year.
The median time on market for all homes was 56 days, up from 54 days last month, but is much faster than the 70 days on market a year ago. 35% of homes sold were on the market for less than a month.
First-time buyers accounted for 28% of purchases, unchanged from 28% last month and down from 30% last year.
All-cash sales comprised 32% of transactions, up from 31% last month and 30% last year.
[Prices continue to rise, which people think to be a good thing, as it implies homes are retaining value and gaining equity, but they forget that high pricing drives people away from buying. We are in a bit of a Catch-22: builders will build more if they can get a higher price for them, but they won’t build them if no one is buying because prices are too high. It is very possible, and considered very likely in some circles, that the double-digit price increases indicate a housing bubble is forming. The high rate of return encourages investment building and flipping, which feeds further price increases. It shouldn’t be discounted simply because we are in a “depressed” market, because bubbles don’t, of necessity, have to occur in a boom economy. They exist because the incentive structure is skewed in a particular market to encourage over-investment and production, and people take advantage of it. The Federal Reserve has expressed specifically that what is needed is a reinflation of the housing bubble, and to that end they have continued the various incentives that brought about the last disaster. As such, it shouldn’t be surprising to see it happening again.]
>< The national apartment vacancy rate fell another 0.1 percentage point to 4.1% in the fourth quarter from the third quarter, according to a preliminary report by real estate research firm Reis Inc.
It was the lowest vacancy rate since the third quarter of 2001 when it was 3.9%. Some 47 out of 79 markets that Reis tracks posted vacancy decreases.
Despite the decline in the vacancy rate, a weak job market and stagnant wages have prevented a commensurate rise in rents, which only went up 0.8% from the previous quarter.
Overall, however, rents in 2013 went up 3.2% year-on-year (Effective rent is the rent landlords receive after months of free rent and other perks)
41,683 apartment units were completed in the fourth quarter, which was the highest since late 2003. Development rose from 29,560 units a year earlier and 37,546 in the third quarter.
With more housing supply coming online, Reis expects vacancies to increase slightly in 2014 while rents rise by roughly 3.3%.
[Rental rates and construction are reflecting the conditions in the housing market. With home prices kept high, many people are being driven to apartment living, as they cannot afford the generous terms of lenders. However, this is driving multi-unit residential construction to accommodate the increase in tenants.
As an interesting side note, the housing component of CPI reflects the rental market and not the home market. Economic theory states that value is imputed backwards from what the consumers can/will pay to the components. With high levels of unemployment and (relatively) low wages, rental rates of apartment properties are increasing slowly (0.8% as compared to nearly 10% for homes), which is helping to keep the official CPI low.]
Energy News:
[Production capacity used continues to be high this week, and crude supplies continue to be at an all-time high, although they are in heavy decline because of the impressive cold that has been ravaging the country. Crude is still trading higher than a year ago, and prices are closing in on $100 per bbl. Crude pricing remains high, but prices generally fell this week, even in spite of the cold and holiday travel.
Gasoline stocks are still at historic highs, but with production decreasing in the face of increasing stocks. Diesel production was increased again slightly, and stocks increased this week.
Gasoline prices rose this week, and are up year-on-year (last year had significant declines all year, so slight increases this year mean that prices are fluctuating around last year’s lows. Diesel prices, however, are still down year-on-year.
Natural Gas prices are up year-on-year, though down slightly, but remain at historically low rates with increasing heating drawdowns taking place. Improvements in distribution and production are making inroads to increase supply and profitability while decreasing prices.]
** Propane is produced from natural gas at processing plants and from crude oil at refineries. Propane produced from natural gas has been the fastest-growing component of overall U.S. propane supply. Propane production in the United States has set record highs on an almost weekly basis in 2013 as a result of increased oil and natural gas drilling.
A record corn crop harvest, however, has increased the demand for propane. A record-setting corn harvest is currently underway in the United States, and corn must be dried to a 15% moisture content before it can be stored to avoid mold and other quality problems. Because propane is used for crop drying, a wet growing season in the Midwest combined with the largest corn yield in U.S. history has greatly increased the demand for propane. Thus far, Indiana, Iowa, Minnesota, Montana, Nebraska, South Dakota, and Wisconsin have declared states of emergency to allow for more delivery of propane throughout the Midwest.
According to EIA weekly data, demand for propane is currently at the highest level ever recorded for November. For the week ending November 1, the United States consumed nearly 1.8 million barrels per day—a figure typically not seen until January or February, when the winter heating season reaches a peak. As a result, propane inventories in PADD 2 (the Midwest) have fallen to their lowest level for November since 1996.
Along with spiking domestic demand, competitively-priced U.S. propane exports have also surged. Exports from the United States are currently estimated to be 288,000 barrels per day, not far from the record of 308,000 barrels per day set in May 2013.
** Gasoline trade flows in the Atlantic Basin are changing. Access to less-expensive crude oil and natural gas is making U.S. refineries more competitive, boosting refinery runs and putting Gulf Coast refineries at an advantage to supply Atlantic Basin gasoline demand. With U.S. gasoline demand mostly declining or flat, Gulf Coast refineries are increasing supply to markets in Latin America and West Africa and redrawing the map of Atlantic gasoline flows.
+ Production:
Crude oil inventories decreased 7.0 million barrels from last week, and are above the upper limit for this time of year at 360.6 million barrels.
Gasoline inventories increased 0.8 million barrels and are in the upper half of the average range, with gasoline production falling (9.1 million bpd from 9.7 million bpd) compared to the previous week.
Distillate (diesel and home heating oil) inventories increased by 5.0 million barrels, but are below the lower limit of the average range. Distillate production was up slightly last week (5.2 million bpd from 5.1 million bpd).
Refineries operated at 92.4% capacity.
Oil (WTI) was up $0.83 from last week and is at $99.94 per bbl, and $9.28 above a year ago.
+ Gasoline & Diesel
The AAA national average retail regular gasoline rose slightly this week, rising to $3.317 per gallon ($3.312 per gallon last week; $3.299 a year ago).
Diesel prices rose slightly this week to $3.872 per gallon ($3.863 per gallon last week; $3.913 a year ago).
>< Propane
Propane inventories fell 1.5 million barrels from last week, and are well below the lower limit of the average range.
Mount Belvieu, TX propane spot pricing as of 12-27-13 was down at $1.260 per gallon from last week’s $1.264 per gallon. It was $0.889 per gallon a year ago. (EIA Wholesale Propane average prices are generally $0.10 to $0.15 higher than the Mount Belvieu, TX spot price)
>< Natural Gas
Report makers at the EIA apparently had the holiday off and hopefully we will have information next week.
Natural Gas Henry Hub spot price (12-27-13) fell slightly this week to $4.34 per million BTUs ($4.35 per MMBtu last week, $3.31 per MMBtu a year ago).
>< Heating Oil
No. 2 Heating Oil, New York Harbor (12-27-13) was up slightly from last week, at $3.124 per gallon ($3.068 a week ago, $3.054 per gallon a year ago). (EIA Wholesale Heating Oil Prices are typically 20 cents higher)
>< Coal
US coal production totaled 19.5 million short tons (mmst), which is 3.1% higher than last week (18.9 mmst) and 5.5% higher than last year (18.5 mmst).
Year to date coal production totaled 976.6 mmst, which is 1.8% lower than last year.
Steel news:
[Steel prices were mixed last week, with Indian prices rising but Chinese prices falling. Raw materials prices rose this week, while alloying and specialty metals prices fell. Steel production in the US was up from from last week, and is up from last year.]
>< American Iron and Steel Institute reports that US raw steel production was 1,822,000 tons and 76.1% of capacity (week ending January 4), up 2.8% from the 1,733,000 tons 74.0% the previous week. This represents a 0.6% increase from the same period last year, when production was 1,812,000 tons and 74.4% capacity.
>< Year to date US production was 1,822,000 tons and 76.1% capacity utilization, which is up 0.6% from last year’s 1,812,00 and 74.4%.
– #1 Heavy melt scrap rose to $379 per ton and #1 busheling scrap rose to $447 per ton.
– Iron Fines FOB Chinese ports remain around $134 per dry metric ton.
– Chinese steel prices were trending down again last week, with the Chinese Long Product Index at 6112 (down 15 points, 0.2%) and the Chinese Flat Products Index at 5608 (down 3 points, 0.1%) (1-3-14 Steelguru.com).
>< Indian steel prices, however, were split in the last week, with the Indian Long Products Pricing at 8755 (down 26 points, 0.3%) and the Indian Flat Products at 8794 (up 63 points, 0.7%) (1-3-14 Steelguru.com).
>< After rallying for the end of the year, metals prices took a plunge this week. Aluminum, Nickel, Copper, Tin, and Zinc all lost with none gaining. Aluminum was down 0.9%, Copper was down 0.5%, Nickel was down 2.0%, Tin was down 6.0%, and Zinc was down 5.6% (London Metal Exchange, cash buyer, 1-3-14).
For the year, Zinc was up 3.0%, Nickel was down 16.8%, Tin was down 1.1%, Aluminum was down 14.3%, and Copper was down 5.2%
Automotive News:
>< GM said cold weather and weaker sales performance early in the month pressured its December results, as the largest of the Big Three automakers posted a 6.3% decline.
The company sold 230,157 vehicles, down from 212,060 last month and down from 245,733 in December last year.
Each of GM’s brands saw weaker sales. Chevrolet fell 8.1% as sales of the Silverado pickup dropped 16%. GMC Sierra pickup trucks fell 4.6%, and overall sales for the brand slid 1.8%.
+ Ford reported a 1.8% rise in sales last month amid another surge in truck sales.
Ford sold 218,058 vehicles, 14.5% higher than last month and up from 212,902 a year ago.
Sales of 74,592 F-Series trucks set the pace, helping the Ford brand rise 1.6% overall. Lincoln was up 8.1% for the month.
Ford’s total sales for 2013 rose 10.8% to roughly 2.5 million vehicles, marking the company’s best year since 2006.
+ Chrysler said Friday it sold 161,007 new vehicles in December, up 13% from last month’s 142,275, and up from 152,367 a year ago.
Truck sales led the way for Chrysler, jumping 15% to offset a 17% decline in car sales.
Chrysler’s results were also buoyed by its Jeep brand and the new Cherokee sport-utility vehicle, which completed its second full month of sales last month. The Cherokee topped 15,000 units, and Jeep logged its best December sales ever with a 34% increase.
The Ram Truck brand was up 17% for the latest month, while sales of Ram pickup trucks rose 11%. Dodge and the namesake Chrysler brand weighed on the report, falling 9% and 21%, respectively. Fiat’s December sales ticked 1% higher.
– Also reporting, Toyota showed a 1.7% drop in December sales, while Hyundai’s U.S. sales rose 6%, Honda saw 1.9% growth, and Nissan’s sales were up 10.5%.
– Volkswagen finished a rough year with a 22% drop last month.
Transportation News:
[Rail traffic was rose year-on-year last week, and continues its steady pattern of year-on-year growth. Boeing and Airbus continue to sell more airplanes, which will be good for ensuring production and income for some time to come, especially with Boeing finally resolving its labor quandary, keeping production going in Seattle. Trucking numbers weighed in positively this month, showing growth in demand for goods to be shipped.]
>< The Association of American Railroads reported increased traffic for the week ending December 28, 2013.
U.S. railroads originated 230,933 carloads, down from last week, and up 8.1% from last year. Intermodal volume for the week totaled 172,396 trailers and containers, down from last week, and up 10.6% from last year.
Total cumulative 2013 US traffic is up 1.8% from last year.
Nine of the 10 carload commodity groups posted increases compared with the same week in 2012, led by grain, up 36.8%.
Canadian railroads reported 59,830 carloads and 37,662 intermodal loads, down 0.4% and up 8.1% from the same period last year.
Mexican railroads reported 9,690 carloads and 5,775 intermodal loads, down 6.0% and down 9.6% from the same period last year.
+ More orders for planes from Boeing have come in – Air Algerie announced a commitment for eight Next-Generation 737-800 airplanes. When finalized, the order will be worth $724 million at list prices.
+ Some interesting info about the new 787 Dreamliners:
Boeing has flown a 787-9 Dreamliner to Auckland, home of launch customer Air New Zealand, marking the 787-9′s international debut and longest flight since the robust test program began.
The second of three 787-9s dedicated to the flight-test program, ZB002 flew direct from Seattle’s Boeing Field to Auckland International Airport, departing January 3 and landing some 13 hours, 49 minutes later. (14 hours non-stop to Australia!)
With the fuselage stretched by 20 feet over the 787-8, the 787-9 will fly up to 40 more passengers an additional 300 nautical miles with the same exceptional environmental performance — 20% less fuel use and 20% fewer emissions than similarly sized aircraft.
Boeing is on track to deliver the 787-9 to Air New Zealand in mid-2014. Twenty-six customers from around the world have ordered 402 787-9s, accounting for 39% of all 787 orders.
+ The Boeing 777X will be built in the Puget Sound, Washington area, as IAM members approve Boeing’s offer.
Boeing’s contract extension offer was approved by members of the International Association of Machinists & Aerospace Workers District 751 (IAM).
Under the terms of the eight-year contract extension, the 777X and its composite wing will be built in the Puget Sound area by Boeing employees represented by the IAM. This work includes fuselage build, final assembly and major components fabrication such as interiors and wires.
+ The American Trucking Associations’ For-Hire Truck Tonnage Index rose 2.7% in November after falling a revised (down) 1.9% in October.
In November, the SA index equaled 128.5 (2000=100) versus 15.1 in October, and is a reord high.
Year-on-year the SA index rose 8.1%.
Year-to-date, compared with the same period in 2012, the tonnage index is also up 5.8%.
The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 122.4 in November, which was 8.8% below the previous month (134.2).
(Trucking represents 68.5% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.4 billion tons of freight in 2012. Motor carriers collected $642.1 billion, or 80.7% of total revenue earned by all transport modes.)
[Trucking still continues to grow, albeit wobbling along its trend line, which is good, as it shows a slow-but-steady growth in the economy, most of which is served in one form or another by trucking.]
Asia News:
+/- China’s State Council issued an order imposing new limits on shadow banking (lending occurring outside of the banking system) in the highest-level effort yet to control off-balance-sheet lending.
The new rules include banning transactions designed to avoid regulations such as moving interbank lending off balance sheets.
The order reflects government concern that an industry estimated by JPMorgan Chase & Co. at 36 trillion yuan ($5.9 trillion), or 69% of China’s 2012 gross domestic product, may threaten the stability of the financial system.
Premier Li Keqiang is seeking to reduce the risk of defaults by cutting leverage in the world’s second-largest economy.
[This is a good thing in the long term in that it will help to clear problems in the lending markets of China. It is a very bad thing, however, in the short term, as increasing regulations on the banking industry and pulling back on previously-incentivized lending will lead to a banking crisis and the bursting of the many bubbles percolating up through the Chinese economy. The Chinese economy is an economic meltdown just waiting for a trigger, which the banking regulations may just end up being.]
+ China will allow a batch of three to five banks funded by private investment this year to operate under a trial as part of the country’s financial reforms.
China will guide private investment to participate in the restructuring of existing banks and explore lowering the threshold for foreign banks to enter the industry. The China Banking Regulatory Commission will also step up its support of the Shanghai free trade zone.
The country intends to moderately ease the risks from local government financing vehicle loans this year and strictly control risks from property loans as part of its efforts to improve financial services.
Foreign lenders are struggling to expand their market share of less than 2% in the world’s second-largest economy, where banking assets more than doubled since 2008 to 147 trillion yuan ($24 trillion) as of Sept. 30. Global banks face government restrictions on adding branches and offering products as local rivals churn out record profits.
[Financial reform and allowing foreign investment will be a boon to the Chinese economy, but for the fact that investment will be “guided” by the government. Governmental meddling and protection of the domestic banking industry is what has caused the problems in the first place.]
— Rubber in Tokyo slid the most in seven months on the first trading day of the year after data showed stockpiles in China expanded to a nine-year high, raising concern demand from the largest consumer is weakening.
[Rubber is one of the many commodity bubbles threatening to envelop the Chinese economy. Stockpiles in steel, iron, and cotton have also been swelling as the Chinese government tries to encourage growth of its industries through subsidization as it buys up excess. But these stockpiles will only exacerbate the problem when it hits.]
European News:
>< U.K. Chancellor of the Exchequer George Osborne today held out the possibility of tax cuts funded through billions of pounds of additional welfare savings, sparking a rift with his Liberal Democrat coalition partners.
In a speech in Birmingham, central England, Osborne said that while the British economy is “on the rise,” 25 billion pounds ($41 billion) of government spending cuts will be needed after the 2015 election, with half of that coming from welfare.
In his Autumn Statement on Dec. 5, Osborne set out plans to return the budget to surplus in 2019 for the first time since 2001. He has cut welfare by more than 20 billion pounds since taking office in 2010 and is proposing to introduce a cap on 100 billion pounds of social-security spending, excluding state pensions.
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Disclaimer: This report and a lot of its analyses have been created from a variety of source materials, some quoted directly. This report is intended as a précis of world activity for informational purposes only. While I may not have managed to acknowledge every source here, no attempt at plagiarism is intended.
Shade Tree Economist 