Economic Roundup 2-4-14

Economic Roundup 2-4-14

General US News:

Time for the monthly housing recap, where we put together all the housing data that came out in January:

+ The US Census Bureau Report on Put-in-Place Construction shows that construction spending during December 2013 was estimated at a seasonally adjusted annual rate of $930.5 billion, up 5.3% from the estimate from last year this time (up 0.1% month-on-month).

Through the end of 2013, construction spending was $898.4 billion, 4.8% 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 8.0% from last year (up 1.0% from last month), at $663.9 billion, with residential construction up 18.3% from last year (up 2.6% from last month) and non-residential construction down 1.7% from last year (down 0.7% from last month).

The Public Construction adjusted annual rate was down 0.7% from last year (down 2.3% from last month) at $266.6 billion, with educational construction down 7.2% from last month and highway construction up 1.8% from last month.

[Construction spending continues to be up from last year, with large percentage gains being made by private residential construction, which is up a significant 18.3% year-on-year (up 18.0% not seasonally adjusted). Nonresidential construction was down slightly year-on-year, with the biggest gains in power and biggest losses in power and communication.

Private residential single-family construction has evened up its growth rate to being even with multi-family construction (apartments, condos, duplexes, etc.) this month, as opposed to multi-family construction doubling the growth of single family.

Private construction is up 8.5% year-on-year while public construction is down 2.8% 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 December were at a seasonally adjusted annual rate of 986,000. This is 3.0% below last month but is 4.6% above last year. Single family permits are down 4.8% on last month.

Starts are up:
Privately-owned housing starts in December were at a seasonally adjusted annual rate of 999,000. This is 9.8% below last month, but is 1.6% above last year. Single family starts are down 7.0% on last month

Completions are down:
Privately-owned housing completions in December were at a seasonally adjusted annual rate of 774,000. This is 10.8% below last month but is 10.7% above last year. Single family completions are down 8.2% 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 down, which somewhat follows the pattern, as permits were down the month prior. Completions are way down, which is off pattern, since starts were way up last month. Generally speaking, though, the cold weather has dramatically affected residential construction. It affects both the ability to get things built (specialized methods are required to pour foundations in severely cold weather), but also in getting people to come out and buy. With demand expected to be down, it is not surprising that construction slowed.

However, the numbers are still up, and up decently, over last year. So the housing industry is still managing to creep forward.]

>< The US Census Bureau report on New Residential Sales shows that sales of new single-family houses in December were 414,000.

This is 7.0% lower than last month’s 445,000, but 4.5% higher than last year.

The seasonally-adjusted estimate of new houses for sale at the end of December was 171,000, indicating a supply of 5.0 months.

The median sales price of new houses sold in December 2013 was $270,2900; the average sales price was $311,400.

[Again, cold weather is considered to blame for the drop in residential sales for December. It is hard to get people to buy when it is considered to be too cold to go outside. But even with all of this, the rates were still up year-on-year.

The trends, however, seem to imply that we finally are rising up from being at “rock bottom.” I say “rock bottom” because there is no reason that we can’t go any lower, and might if the government is unable to get its act together. But we seem to be trending back up from our lowest point. It needs to be put into perspective, however, before we declare that we are on the road to recovery, that we are currently seeing numbers that equate to the depths of the 1980’s crisis, and far from being recovered.]

>< The National Association of Home Builders Housing Market Index was released:  Builder confidence in the market for newly built, single-family homes fell in January (December-based), to a level of 56, showing slightly decreased optimism by builders.

The index’s components all declined this month. The component gauging current sales conditions dropped 1 point to 62, while the component gauging sales expectations in the next six months fell by 2 points to 60, and the component gauging traffic of prospective buyers fell 3 points to 40.

Three-month moving averages for each region’s HMI score were mixed, with the Northeast rising 4 points to 42, the West rising 4 points to 63, the Midwest down 1 point to 58, and the South steady at 56.

(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 decreased this month, but is still above “even.” The indices judging future potential all are still pretty positive, but I find it interesting that the gauge of prospective buyers still remains stuck near dismal numbers. Looking at the construction and sales numbers, we are still in a deep trough, so I think the optimism comes from feeling that things have bottomed out, even if prospective traffic is slow.]

>< The National Association of Realtors Pending Home Sales Index (an indicator based on contract signings and reflecting contracts, not closings) dropped dramatically to 92.4 in December from a downwardly revised 101.2 in November (2001 =100).

This number is 8.7 points below last month, and is 8.8 points lower than last year, when it was 101.3.

[Pending home sales took a big hit last month, considerably because of the cold weather. So I won’t get too wound up about the steep fall. However, I do find it interesting that the NAR chief economist made the following observation:  “Home prices rising faster than income is also giving pause to some potential buyers, while at the same time a lack of inventory means insufficient choice. Although it could take several months for us to get a clearer read on market momentum, job growth and pent-up demand are positive factors.” Prices rising faster than income, notably pushing people out of buying, doesn’t sound positive to me. And equating lower rates of construction with pent-up demand also seems incorrect. Right now the US policy makers are pushing home-ownership with continued low rates and easy credit. I think construction learned its lessons about overproducing from the last bubble, and are what is keeping current Fed policies from creating a new one.]

+ The National Association of Realtors Existing Home Sales Index reports that existing home sales edged up in December.

Total existing home sales (which are completed transactions that include single-family homes, townhomes, condominiums and co-ops) increased 1.0% to a seasonally adjusted annual rate of 4.87 million from last month’s revised 4.82 million, but are 0.6% below last year.

For all of 2013, there were 5.09 million sales, which is 9.1 percent higher than 2012. It was the strongest performance since 2006 when sales reached an unsustainably high 6.48 million at the close of the housing boom.

The median home price for existing homes was $198,000, up 9.9% over last year.

Total housing inventory at the end of December declined to 1.86 million existing homes available for sale, which represents a 4.6-month supply at the current sales pace.

Distressed homes (foreclosures and short sales) accounted for 14% of December sales, unchanged from last month; they were 24% last year.

The median time on market for all homes was 72 days, up from 56 days last month, but is slightly faster than the 73 days on market a year ago. 28% of homes sold were on the market for less than a month.

First-time buyers accounted for 27% of purchases, down from 28% last month and down from 30% last year.

All-cash sales comprised 32% of transactions, even from 32% last month and up from 30% last year.

[Hmmm…. New home sales are down, and the cold is to blame. And yet existing home sales are up…. I think the population is finding economy in the lower pricing of an existing home, and are willing to get into a lesser house and fix it up than necessarily buying new. In addition, there is little shown about the demographics of who is buying, and I wonder how much of the sales is being driven by people “downgrading” their homes or buying because job opportunities are forcing a move. At least the distressed homes are declining, although that could be an artifact of intervention by policy-makers to restrict foreclosures and liquidations.]

Energy News:

[Production capacity gained back a bit this week, and is less than it has been recently, but crude supplies continue to be very high. There continue to be heavy drawdowns because of the cold that has been plaguing the country, which is putting upward pressure on pricing. Crude bubbled back up above last years prices, and natural gas and propane are experiencing shortages and price spikes.

Gasoline stocks have experienced some decreases, but with production increasing. Diesel production decreased, but inventories managed an increase.

Gasoline prices fell this week, and are significantly down year-on-year. Diesel prices are still down year-on-year, but rose slightly and are beginning to match last year’s numbers.

Natural Gas and Propane prices shot up significantly this week, as increasing drawdowns for heating and electricity are taking place. Record cold has also influenced supply which has led to significant price pressures.]

Crude:

Crude oil inventories increased 6.4 million barrels from last week, and are in the upper half of the average range for this time of year at 357.6 million barrels.

Refineries operated at 88.2% capacity (86.5% last week)

Oil (WTI) was up this week ($2.70 /bbl) from last week and is at $96.66 /bbl, but $1.51 above a year ago.

Transportation Fuel:

Gasoline inventories decreased 0.8 million barrels but are well above the average range, with gasoline production increasing (9.2 million bpd from 8.5 million bpd) compared to the previous week.

Gasoline prices fell slightly this week, to $3.279 /gal ($3.282 last week; $3.514 a year ago)  –  AAA National average retail

Distillate (diesel and home heating oil) inventories decreased by 4.6 million barrels, and are well below the lower limit of the average range. Distillate production was up last week (4.8 million bpd from 4.5 million bpd).

Diesel fuel prices rose slightly this week, to $3.906 /gal ($3.868 last week; $3.967 a year ago)  –  AAA National average retail

Heating Fuel:

Propane inventories fell 3.6 million barrels from last week, and are well below the lower limit of the average range.

Propane spot pricing rose this week, to $1.520 /gal ($1.393 last week; $0.858 a year ago) – Mount Belvieu, TX as of 1-24-14

Natural gas in storage saw a larger-than-average net withdrawal, with a drawdown of 230 Bcf, to 2,193 billion cubic feet, with storage volumes 637 Bcf (22.5%) below year ago levels, and 437 Bcf (16.6%) below the 5-year average.

Total natural gas consumption for the week rose 17.6% relative to last week, reflecting a 23.4% rise in residential and commercial (heating) consumption. Falling temperatures increased heating demands, both from fuel and from electric generation.

Total supply decreased over the week. U.S. dry gas production decreased 0.5% following well freeze-offs, but was offset by an 18.4% increase in imports from Canada.

Natural Gas spot pricing rose to the highest levels since 2010 this week, to $5.17 per million BTUs ($4.39 last week, $3.56 a year ago) – Henry Hub as of 1-24-14

Heating Oil was up from last week, at $3.200 /gal  ($3.071 a week ago, $3.075 a year ago) – No. 2, NY Harbor as of 1-24-14

Coal:

US coal production totaled 19.2 million short tons (mmst), which is 0.6% higher than last week (19.1 mmst) and 2.0% higher than last year (18.8 mmst).

Year to date coal production totaled 67.1 mmst, which is 2.9% lower than last year.

Steel news:

[Steel prices were mixed last week, with Indian prices still rising but Chinese prices continuing to fall. Raw materials prices were stable this week, while alloying and specialty metals prices dropped significantly. Steel production in the US was down slightly from from last week, and is down from last year.]

US Steel Production:

This week was 1,804,000 tons and 75.3% of capacity (week ending February 1), down 1.1% from last week and down 1.9% from last year.
Last week was 1,824,000 tons and 76.1% of capacity
One Year Ago was 1,839,000 tons and 76.5% of capacity
[American Iron and Steel Institute]

Year to date US production was 8,335,000 tons and 76.1% capacity utilization, which is down 0.4% from last year.

Inputs:

– #1 Heavy melt scrap was steady at $399 per ton and #1 busheling scrap was steady at $454 per ton.

– Iron Fines FOB Chinese ports fell last week, and are around $122 per dry metric ton

Pricing:

– Chinese steel prices rose very slightly this week, just prior to the holidays, with the Chinese Long Product Index at 5988 (up 3 points, 0.1%) and the Chinese Flat Products Index steady at 5560 (up 0 points, flat%) (1-28-14 Steelguru.com).

>< Indian steel prices, were up in the last week, with the Indian Long Products Pricing at 8882 (up 6 points, 0.1%) and the Indian Flat Products at 8855 (up 37 points, 0.4%) (1-31-14 Steelguru.com).

>< Metals took a beating last week. Aluminum, Nickel, Copper, Tin, and Zinc all lost with none gaining. Aluminum was down 3.7%, Copper was down 2.1%, Nickel was down 5.9%, Tin was down 0.9%, and Zinc was down 2.7% (London Metal Exchange, cash buyer, 1-31-14).

– – Year-on-year Aluminum is down 23.7%, Copper is down 14.8%, Nickel is down 35.17%, Tin is down 7.6%, and Zinc is down 6.3%

Transportation News:

[Railroads traffic continues to pick up year-on-year, showing strengthening deliveries of raw materials and goods.]

Rail:

U.S. railroads originated 280,761 carloads, down from last week, and up 5.6% from last year.
Intermodals totaled 245,883 trailers and containers, down from last week, and up 3.0% from last year.
(Week ending January 25, 2014 – Association of American Railroads)

Total cumulative 2014 US traffic is up 1.3% from last year.

Seven of the 10 carload commodity groups posted increases compared with the same week in 2013, led by grain, up 24.4%.

Canadian railroads reported 74,311 carloads and 52,824 intermodal loads, down 1.6% and up 1.7% year-on-year.
Mexican railroads reported 16,416 carloads and 10,542 intermodal loads, up 8.9% and up 6.7% from the same period last year.

Air:

Alitalia is about to finalize loan agreements with banks for up to 200 million euros ($270 million) pledged last year to help keep the Italian airline flying while it finds a potential new partner.

The loans are part of a 500 million euro emergency package put together to give the troubled airline enough cash while it restructures and finalizes talks with Etihad Airways on a possible investment.

The bank financing and a 300 million capital increase, which Alitalia completed in December, are expected to keep the carrier in the air for about six months, but the airline urgently needs a strong industrial partner to remain profitable in the long term. 

Asia News:

– – Soaring profits among Japanese manufacturers are masking weakness in exports as the yen’s slide against the dollar fails to deliver the boost seen after previous bouts of currency depreciation.

Export volumes fell 1.5% in 2013 from the previous year. That contrasts with a 7.8% surge in 2006 after a similar currency move.

Export volumes last year were 19% below a 2007 peak. In the fiscal year ending March 2013, capital spending was 34.6 trillion yen ($335 billion), down 22% from the 2007 financial year.

[Monetary inflation has hidden consequences! You get a temporary boost, but the realities of life and what the consumers desire cannot be circumvented. The market keeps correction only because the government keeps interfering!]

+ The Philippines last quarter capped its strongest two years of growth since the 1950s as it lured foreign investment and put money into infrastructure.

Gross domestic product rose 7.2% in 2013, after gaining 6.8% in 2012. That was the fastest two-year pace since 1954-1955.

A recovery in advanced economies may help President Benigno Aquino achieve his goal of bolstering growth to as much as 8.5% by 2016 as he transforms the country into a manufacturing hub.

[The Philippines are taking advantage of their comparative advantage in manufacturing, drawing capital to them and expanding their output. If the government can keeps their hands off the Golden Goose, they might be able to make the dramatic changes they wish for.]

– China’s solar-panel makers are investing more in building their own power projects, expanding sources of revenue and soaking up some of the manufacturing capacity that depressed panel prices.

State planners in Beijing are pushing the expansion with the China Development Bank Corp. extending 7.57 billion yuan ($1.25 billion) in new loans since December, the same system the nation used to wrest control of solar panel manufacturing away from German, U.S. and Japanese companies in the last decade. The move will solidify the finances of the manufacturers after a plunge in the cost of the technology triggered losses across the industry for more than two years.

[State funded subsidization of the market will only lead to more problems as, instead of cutting unnecessary production, they are encouraging a “sopping up” of excess production. Unfortunately, this will only encourage greater production, as the companies expand production to meet the guaranteed profits from government projects. The situation will only become worse.]

– Moody’s Investors Service says Japan’s biggest banks need to cut bond holdings and boost loans to protect their balance sheets from potential losses should Prime Minister Shinzo Abe’s stimulus spur yield surges.

The BOJ, which has driven 10-year yields down to 0.62%, estimated that a one-percentage-point increase in JGB yields would cause the biggest banks to incur 2.9 trillion yen in unrealized capital losses. 

At the same time, rising energy import costs and growing public liabilities totaling more than 1 quadrillion yen are increasing the nation’s default risk. Japan’s debt load is the world’s largest as a proportion of gross domestic product at 244%. Credit-default swaps on JGBs have risen 13 basis points this month, the most among the 22 sovereigns being watched.

European News:

+ German unemployment declined more than forecast in January as companies grew more confident in the strength of Europe’s largest economy.

The number of people out of work decreased by a seasonally-adjusted 28,000 to 2.93 million, after falling a revised 19,000 in December. The adjusted jobless rate fell to 6.8%, unchanged from a revised December figure and matching the lowest rate in at least two decades.

+ German inflation, calculated using a harmonized European Union method, held at 1.2% this month. Economists had predicted the rate would accelerate to 1.3%. Prices fell 0.7% on the month.

[Faster inflation erodes the value of fixed payments on bonds, as well as the value of fixed assets, such as bank balances and capital values. Inflation is never a good thing, in spite of what the policy-makers try to claim, so stable or falling levels of low inflation are a good thing.]

—————

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.