ECONOMIC NUGGETS – January 7, 2013

Jan 07, 2014
  1. Congress passed and the president signed into law a budget agreement through fiscal year 2015 (until October 1, 2015), clearing the way for funding federal government operations. Appropriation bills must be passed to implement the agreement before the current continuing resolution (CR) ends on January 15, unless an interim CR is passed to cover agencies that haven’t received appropriations. An omnibus bill covering all appropriations appears likely, but is not guaranteed
  2. The need to raise the federal debt ceiling by early February remains. The effects of hitting the debt ceiling would be more serious than the October partial shutdown of federal government operations and would mean the delay of numerous payments, including payments for Social Security and Medicare, federal payrolls, contractors, tax refunds, and debt payments (a technical default of U.S. government debt)
  3. The Federal Reserve announced it will begin its long anticipated taper beginning this month, reducing its purchases of long-term assets from $85 billion per month to $75 billion per month. This minor reduction in the Fed’s asset purchase program (known as Quantitative Easing, or QE) will only put mild upward pressure on long-term interest rates. At the same time, the Fed indicated it will maintain near-zero short-term interest rates well into the future (most likely into early 2015), counterbalancing the upward pressure on long rates
  4. In coming months, based on how the economy performs relative to the Fed’s expectations, the Fed will adjust its plans accordingly. Thus, higher long-term interest will be an indication of a faster growing economy, which would be a positive for commercial construction, outweighing the negative effects of higher rates
  5. The third (and final until benchmark revisions are released) estimate of third quarter 2013 real (inflation adjusted) gross domestic product (GDP) showed better growth than last reported—revised to +4.1% at a seasonally adjusted annual rate (SAAR) from +3.6%. The upward revision was largely due to faster growth in consumer spending (personal consumption expenditures), revised to +2.0% from +1.6%, and greater investment in intellectual property products (+5.8% from +1.7%). Stronger consumer spending suggests more strength in the economy, possibly offsetting what at first appeared to be an unintended inventory buildup. The increase in inventories may have been intended to meet the greater demand and may turn out to be not as serious an overbuilding as first appeared
  6. November total commercial construction spending was $934.4 billion (SAAR), up 1.0% from October and up 5.0% year-to-date not seasonally adjusted (NSA) compared to the same period in 2012. September and October spending numbers were revised up—$15.4 billion and $16.6 billion, respectively—up 1.7% and up 1.8% from their previously reported levels. Roughly two-thirds of the adjustment for each month was due to an upward revision in residential improvements spending
    • Nonresidential building construction spending was $316.5 billion, up 0.8% for the month, but down 0.1% year-to-date from the same period in 2012. September spending was revised up $7.0 billion, +2.4% of its previously reported level, and October spending was revised up $8.8 billion, +2.9% of its previously reported level
      • Office construction spending increased 2.6% in November—almost as strong as the 2.9% jump in October. Nonetheless, year-to-date spending was down 1.1%
      • Commercial (mainly retail) construction spending surged 4.5% in November following an even stronger 5.8% increase in October; year-to-date spending was up 5.3%
      • Construction spending for institutional construction spending was up for only two categories in the group in November—education construction spending was up 0.2% and religious construction spending was up 0.6%. On a year-to-date basis, all of the categories were down compared to the same period in 2012
      • Manufacturing construction spending rose for the fifth month in a row, up 0.6% in November after increasing 2.8% in October, and up 7.2% on a year-to-date basis
    • Heavy engineering (non-building) construction spending was $267.0 billion, up 0.3% for November, but down 2.3% year-to-date from 2012. The September and October spending numbers were revised down $3.3 billion and $4.3 billion, respectively—down 1.2% and down 1.6% from their previously reported levels
    • New residential construction spending in November was $214.9 billion, up 1.4%, and up 29.6% year-to-date from 2012. Total residential construction spending, which includes residential improvements, was $351.0 billion—up 1.7% from October.
      • September and October residential improvements spending numbers were revised up $10.8 billion and $10.5 billion, respectively, increasing 8.7% and 8.6% from their previously reported numbers. These revisions had a large impact on the revisions for total construction
  1. The November AIA Architecture Billings Index (ABI) fell for the second month in a row, dipping below 50 for the first time since April 2013—down 1.8 points to 49.8. A reading below 50 indicates decreased billings, a negative for future commercial construction. With the measure just below 50, declaring a downturn for commercial construction would be premature. Nonetheless a yellow caution light is flashing. Next month’s reading may give a clearer indication of where we are headed
  2. The December NAHB/Wells Fargo Housing Market Index (HMI) jumped 4 points from November to 58. For the seventh consecutive month, the index was above 50―a positive for single-family residential construction
  3. November new home sales fell 2.1% to 464,000 (SAAR) after surging 17.6% in October to 474,000. The average of 469,000 sales for October and November is considerably above the third quarter average of 388,000 sales per month. Also, both October and November sales were at the highest level since July 2008
  4. Housing prices continue to rise. Both 10-city and 20-city S&P/Case-Shiller® Home Price seasonally adjusted (SA) indexes have increased for 21 consecutive months. In October, both increased 1.0%. On a year-over-year NSA basis, both were 13.6% higher
  5. For all 20 cities, home prices on a year-over-year NSA basis have increased for ten months in a row. On a monthly SA basis, prices were higher in all 20 cities for the third month in a row
  6. The SA Federal Housing Finance Agency’s (FHFA) Purchase-Only Home Price Index increased 0.5% in October, marking 21 consecutive monthly increases. On a year-over-year NSA basis, the index was 8.2% higher
  7. The SA Producer Price Index (PPI) for finished goods slipped 0.1% in November after falling 0.2% in October. On a year-over-year NSA basis, the November PPI was up 0.7%
  8. A price index for inputs used in nonresidential construction, excluding capital equipment, dropped 0.6% (NSA) in November after decreasing 0.5% in October. The index was 0.7% (NSA) higher than in November 2012, while the PPI for inputs for residential construction was up 1.5% over the same period
  9. The Consumer Price Index (CPI), after declining 0.1% (SA) in October, was unchanged in November. The CPI was up 1.2% (NSA) from November 2012. Core CPI, which excludes food and energy prices, increased 0.2% (SA) in November following a 0.1% advance in October. On a year-over-year basis, the index was up 1.7% (NSA) from November 2012

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