Written by Steven Hansen
Earlier this week, we published an infographic from Statista showing the inflation-adjusted sales prices for new homes have been steadily increasing since 2002. The data for this post came from the US Census. But there is more to this new home price appreciation story.
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Using the graph below as a reference, the dotted lines are the index costs of basic material and labor for new construction. One can see that the median sales price (red line) has been outpacing the rise in the costs of labor and materials (dotted lines). This graphic (below) pulls from the same data sets that Statista used in their infographic.
This data shows that the home price increase comes despite the smaller square footage of homes (yellow line). [Note that the inflation data comes from the BLS (dotted lines).] The graph above uses annual data that cut off in 2018.
Contrary to the Statista infographic and my graphic above, median home prices peaked at the end of 2017 – and have changed little since then. When data is annualized, it is difficult to see inflection points.
Recently material prices have significantly fallen. A graph from CoreLogic breaks down the recent decline:
Currently, new home sales are in an upswing, fueled partially by lower interest rates and partially because new home price growth has moderated.
Economic Forecast
The Econintersect Economic Index (October 2019) declined to the lowest level seen since the economic slowdown of 2015/2016. The main reasons for the index decline were the continuous weak industrial production, exports and imports, and government spending for Main Street.
The fundamentals which lead job growth are now showing a significant slowing growth trend in the employment growth dynamics. We are currently predicting the jobs growth to be below the growth needed to maintain participation rates and the employment-population ratios at the current levels.
Economic Releases This Past Week
The following table summarizes the more significant economic releases this past week. For more detailed analysis – please visit our landing page which provides links to our complete analyses.
Overall this week:
small business and consumer surveys continue strong but marginally declined
employment indicators and forecasts show employment growth will continue to slow in the short term
inflation pressures little changed or have declined
consumer credit growth continues to slow
| Release | Potential Economic Impact | Comment | |||||||||||||||||||||
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| August Consumer Credit | borrowing continues to slow | The headlines say consumer credit rate of annual growth slowed relative to last month. Our analysis shows annual growth decelerated. Student loan year-over-year growth rate continues to marginally slow whilst the non-student loan debt growth rate has changed very little. A quick look at what is going on is summarized in the graph below which shows the consumer credit rate of growth little changed over the last 12 months (blue line in the graph below) over the last year.
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| September Conference Board Employment Index | improved this month but the growth rate is near zero | The Conference Board’s Employment Trends Index – which forecasts employment for the next 6 months increased with the author’s saying “The speed of hiring may slow a little in the coming months as a result of weakening business confidence and a tightening labor market“.
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September Producer Price Index | n/a | The Producer Price Index (PPI) year-over-year inflation declined from 1.8 % to 1.4 %, Inflation pressures declined this month. The producer price inflation breakdown:
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| August JOLTS | says job rate of growth will slow | The unadjusted data this month remained well below average for the rate of growth seen in the last year. With this low average rate of growth, JOLTS is predicting lower employment growth than we have seen over the past year. Jolts predicted the slowing of employment growth.
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| August Wholesale Trade | wholesale is not included in GDP | Overall, the rolling averages tell the real story – and they declined this month. This sector’s growth continues to trend down. The rolling averages are in contraction. Inventory levels this month remain at recessionary levels. Please note that I believe there is something very wrong with the data gathering as this series is significantly worse than any other data set I review.
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| September FOMC Meeting Minutes | ??? | I suggest everyone read these minutes – they have not been cookies cutter minutes (having little real change between meeting) since the departure of Chair Janet Yellen. It is interesting that the Fed when faced with a yield curve inversion, slowing inflation, great job growth, and believe the economy was doing well – decided to lower the federal funds rate. The FOMC believes lowering the federal funds rate will put upward pressure on the inflation rate – this is counter-intuitive.
It appears the Federal Reserve is considering following the Bank of Japan in buying treasury and other bonds to keep the markets liquid in light of the growing government debt. | |||||||||||||||||||||
| September Consumer Price Index | n/a | According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.7 % year-over-year (unchanged from the reported 1.7 % last month). The year-over-year core inflation (excludes energy and food) rate also was unchanged at 2.4 % and is above the target set by the Federal Reserve. Energy was the main reason for inflation moderation. Medical care services cost inflation rose from 4.3 % to 4.4 % year-over-year.
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| September Import/Export Price Index | n/a | Year-over-year import and export price indicies remain in contraction year-over-year. Import prices rose from -1.8 % to -1.6 % whilst export pricing declined from -1.4 % to -1.6 %. Import Oil prices were up 2.1 % month-over-month, and export agricultural prices were down 1.8 %. Year-over-Year Change – Import Prices (blue line) and Export Prices (red line)
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| Surveys | business and consumer sentiment remain relatively strong | September Small Business Optimism – The NFIB Small Business Optimism Index maintained a historically solid reading, but took a dip in September, falling 1.3 points to 101.8. September’s figure falls within the top 20% of all readings in the Index’s 46-year history.
Michigan Consumer Sentiment – The preliminary University of Michigan Consumer Sentiment for October came in at 96.0 – up from September’s 93.2, and up from August’s 89.8. According to the authors:
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| Rail Movements | Definitely not positive news | Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.
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Links To All Of Our Analysis This Past Week
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