ECONOMIC NUGGETS – February 28, 2013
- As expected, fourth quarter 2012 real (inflation-adjusted) gross domestic product (GDP) was revised up. The revision changed from a 0.1% decline at a seasonally adjusted annual rate (SAAR) to a 0.1% gain. That still leaves the story essentially the same—the economy flattened at the end of last year.
- As in the previous report, the slowdown was largely due to a sharp reduction in defense spending and a drop in business inventories, neither of which is likely to be repeated going forward. The cutback in defense spending was probably in anticipation of sequestration (across-the-board federal budget cuts). The revision showed that the decrease in business inventories subtracted even more from real GDP growth than previously estimated—1.6% instead of 1.3%. However, expect companies to rebuild their inventory levels over coming months, which will add to growth. The positive revisions were in net exports, which went from subtracting 0.3% from growth to adding 0.2%, and in investment in nonresidential structures, which went from a slight subtraction from growth (-0.03%) to adding 0.2%.
- As of this writing, it appears that sequestration will go into effect on March 1. The early effects are likely to be minimal. Given that the government has to send advance 30-day notices, furloughs and layoffs will not take effect until the beginning of April. However, there is already a disruption to contracts and spending (note the cutback in defense spending at the end of last year) that is a drag on the economy and will, in many cases, increase the ultimate cost to government. The longer sequestration is in effect, the greater the drag on the economy and the greater the eventual cost to the federal government. Let us hope a solution is forthcoming soon.
- Housing continues on an upward path.
- Single-family housing starts rose a modest 0.8% to 613,000 (SAAR) in January, their highest level since July 2008. For 2012, single-family starts were up 24.2%. Single-family building permits increased a stronger 1.9% to 584,000 in January, their highest level since June 2008
- The February NAHB/Wells Fargo Housing Market Index (HMI) fell a point from January to 46, indicating a slight tempering of homebuilders’ optimism
- Home sales skyrocketed 15.6% in January to 437,000 homes (SAAR) from 378,000 in December. For 2012, sales increased 19.9% to 367,000 from 306,000. Before getting too excited with the January sales number, keep in mind that the numbers are seasonally adjusted. Given the low level of activity in the winter and the vagaries of winter weather from year to year, a small variation from “normal” in either direction is amplified by the seasonal adjustment process. Nonetheless, the housing market is clearly improving, and that trend should persist for several quarters
- Housing prices continue to track higher. Both the 10-city and 20-city S&P/Case-Shiller® Home Price indexes rose for the eleventh month in a row, and both were up 0.9% (SA) in December. On a year-over-year NSA basis, the 10-city index was up 5.9%, and the 20-city index was up 6.8%. None of the 20 cities experienced a price decline in December on a seasonally adjusted basis. New York City was the only metro among the 20 cities with home prices down on a year-over-year basis (-0.5%)
- The December Federal Housing Finance Agency’s (FHFA) Purchase-Only Home Price Index rose 0.6%, its eleventh consecutive monthly increase. From December 2011 to December 2012, NSA prices increased 5.9%
- Multifamily housing starts plunged 24.1% to 277,000 (SAAR) in January, following a 34.7% surge in December. The 3-month moving average, which smoothes out the erratic monthly moves, was down a more modest 2.5% to 304,000—its second highest level since August 2008. For the year, starts increased 37.7%
- The January 3-month moving average of multifamily building permits jumped 4.0% to 336,000 from 323,000 in December. January average permits were the highest since August 2008
- The AIA Architecture Billings Index (ABI), after falling in December to 52.0, rebounded in January to 54.2—its highest level since November 2007. January also marked the sixth consecutive month with a reading above 50. Any reading above 50 indicates increased billings and is considered a positive for future commercial construction.
- Inflation remains moderate. The January Producer Price Index (PPI) for finished goods advanced 0.2% (SA) following three months of declines, including a 0.3% decrease in December. On a year-over-year NSA basis, the index increased 1.4%.
- A price index for inputs used in nonresidential construction, excluding capital equipment, increased 0.6% (NSA) in January after falling three months in a row and sliding 0.3% in December. The index was up less than a percent (+0.8%) from January 2012
- The SA January Consumer Price Index (CPI) was unchanged for the second month in a row. The NSA CPI was 1.6% higher than January 2012. Core CPI, which excludes food and energy prices, increased 0.3% (SA) after rising 0.1% in December and was up 1.9% (NSA) from January 2012.