Improving Economy, Yet an Uncertain Climate | IMRE Build IQ

Aug 21, 2012 09:36 AM

By IMRE Research

Businesses and economists alike are concerned about the reverberations resulting from deadlock in Washington over tax and spending policies. If Congress fails to reach an agreement by the end of this year, the economy will encounter what Federal Reserve Chairman Ben S. Bernanke has called a ?fiscal cliff.? With this uncertainty, Morgan Stanley reported that businesses are beginning to hedge their bets against further political maneuvering by delaying hiring and postponing or cutting back on investment expenditures. It remains to be seen how deep such cuts will eventually go, but what is clear is that these spending delays come at a time when the U.S. economy needs a boost.

GDP Growth

• The government?s first estimate for second quarter GDP growth slowed to 1.5%, down from the 2% reported for the first quarter.
• The deceleration in GDP mainly resulted from decreases in personal consumption expenditure (PCE) and fixed investments.
• Both components of fixed investments ? residential (single- and multi-family housing) and non-residential components (equipment, capital goods, etc.) ? saw declines coming into the second quarter.
• Specifically, the contribution of residential fixed investments decreased from 0.43 to 0.22 and that of non-residential fixed investments dropped from 0.74 to 0.54 compared to Q1 2012.
• As for PCE, the drop mirrors the modest declines in consumer confidence that occurred over the past several months. PCE?s contribution to GDP slipped to 1.05 from the 1.72 reported in the first quarter.

Consumer Confidence

• Consumer confidence managed to reverse its downward trend in July and edged up slightly to 65.9 from the 62.7 reported in June.
• Modest improvements in consumer?s short-term expectations helped improve confidence. Nevertheless, consumers remain pessimistic about their earnings.
• Ultimately, more jobs are needed to see a significant jump in confidence levels among consumers.

Employment Situation

• July did see an addition of 163,000 jobs, the largest job gains since February and more than 2.5 times the number of jobs added in June.
• The unemployment rate remained essentially unchanged for the month. July posted an unemployment rate of 8.25%, up only three one-hundredths of a percent over June.
• Professional services led the gains, with 49,000 job additions, and manufacturing saw an addition of 25,000 jobs, mostly in the durable goods category.

Housing Prices

• Both Case-Shiller Indices of the 10- and 20-city composites reported average home price improvements of 2.2% in May over April.
• The improvements in the 20-city composite marked the strongest month-over-month percentage gain in more than a decade. Moreover, all 20 cities in the index posted positive monthly results.

• Additionally, the National Association of Realtors (NAR) reported improvements in home prices. For June, the NAR reported the national median existing-home price was $189,400, a 7.9% improvement from one year ago.

Home Sales and Inventories

• In spite of improving home prices, the NAR reported a 5.4% drop in June sales of existing homes over the previous month to a seasonally adjusted annual rate of 4.37 million homes. Nevertheless, this sales pace remains 4.5% higher than the June 2011 level.
• Inventory of existing homes in June declined 3.2% over the previous month to a rate of 2.39 million units. At the current pace, there is a 6.6-month supply of existing homes on the market.

New Home Construction

• New home construction increased to a pace of 760,000 units in June, a 6.9% improvement over the upwardly revised May estimate and 23.6% above the June 2011 rate.
• June?s level of new home construction is the highest to be seen since October 2008, and was heavily buoyed by single-family housing starts.
• At a rate of 539,000 units, a 4.7% increase above the May pace, single-family starts were responsible for more than 70% of all housing starts for the month. Multi-family starts rose by 12.8% over the previous month.
• In a possible cautionary sign for the housing industry, the number of new residential construction permits issued in June dropped 3.7% over the prior month to 755,000, however, this pace remains a 19.3% improvement above the June 2011 estimate.

The American Institute of Architects: Architectural Billings Index (ABI)

• The AIA?s Architectural Billings Index saw its third month of declines coming in at 45.9 (a score of 50 means no change from the billings of the previous month).
• Consistent with permits, residential firms saw a modest decline, with a score of 49.0. Commercial and industrial firms, however, saw a greater drop, coming in at 46.9.
• These declines could signal a slowing of the housing market recovery through the remainder of the year, at least where new construction is concerned.

With improvements in home prices, starts and permits, there continues to be positive momentum in the housing market ? at least for now. Continuing this momentum, and further boosting the overall economy, will be dependent on whether Washington can overcome its deadlock and avoid the impending ?fiscal cliff.?

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Tags: ABI, AIA, Architectural Billing Index, economic indicators, Economic Report, economy, Employment, GDP, GDP growth, housing, IMRE Research, Morgan Stanley

Source: http://imrebuildiq.com/2012/08/21/improving-economy-yet-an-uncertain-climate/

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