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ECONOMIC NUGGETS – May 1, 2014

May 01, 2014
  1. At the completion of its two day Federal Open Market Committee (FOMC) meeting at the end of April, the Federal Reserve announced it will ratchet down its purchases of long-term assets from $55 billion per month to $45 billion per month starting this month. The Fed keeps its apparent strategy to reduce its monthly long-term asset purchases in $10 billion increments following each FOMC meeting, roughly every six weeks. As always, the Fed retains the flexibility to change its planned purchases based on developing economic conditions
  2. The FOMC statement also reaffirmed the Federal Reserve will maintain its target federal funds rate range of 0% to 0.25%
  3. The weather had a mixed impact on different sectors of the construction industry. March total commercial construction spending was $942.5 billion at a seasonally adjusted annualized rate (SAAR), up a scant 0.2% from February but up 8.3% on a year-to-date not seasonally adjusted (NSA) basis
    • Perhaps most troubling was that nonresidential building construction spending has fallen for five consecutive months. March nonresidential spending was $298.8 billion, 1.0% lower than in February. Worse, January and February spending were revised down by $3.3 billion and $6.4 billion, respectively—1.1% and 2.1% of their respective previously reported number. Nonetheless, on a year-to-date NSA basis, spending was 3.5% higher than the same period a year ago
      • Lodging construction spending was one of the few areas in this group to show any strength for the month, advancing 1.2% following a strong 3.1% gain in February. On a year-to-date NSA basis, spending was up 33.7%
      • Health care construction spending reversed a small gain in February (+0.3%) and fell 2.0% in March. On a year-to-date NSA basis, spending was 6.5% lower than a year ago
      • Education construction spending fell for the fifth month in a row, down 1.6% in March and 5.5% lower on a year-to-date NSA basis than last year
      • Manufacturing construction spending managed a small gain, up 0.4% in March after plunging 3.5% in February. On a year-to-date NSA basis, spending was up 9.7%
    • Heavy engineering (non-building) construction is doing somewhat better, rising for the second straight month. Spending was $269.2 billion, up 0.8% in March after rising 0.7% in February. On a year-to-date NSA basis, spending was 4.5% higher than a year ago. Spending for January and February were revised down by $2.5 billion and $5.3 billion, respectively—0.9% and 2.0% of their respective previously reported numbers
      • Transportation construction spending jumped 4.3% in March after slipping 0.3% in February. On a year-to-date NSA basis, spending was up 6.0%
      • Water and sewer construction spending finally ended four months of decline, increasing 2.5% in March after dropping 4.0% in February. On a year-to-date NSA basis, spending was down 6.8%
    • New residential construction spending has increased for two and a half years. Spending was $229.1 billion in March, up 0.7%. On a year-to-date NSA basis, spending was up 17.9%
  1. The March AIA Architecture Billings Index (ABI) dipped below 50 for the third time in the last five months, down 1.9 points to 48.8. An index number below 50 indicates falling billings, a negative for the outlook for commercial construction
  2. The first (advance) estimate of first quarter 2014 real (inflation-adjusted) gross domestic product (GDP) growth was a disappointing +0.1% (SAAR) down from fourth quarter’s +2.6%, showing the impact of the harsh winter weather on the economy. Note, however, that this preliminary estimate uses incomplete data and will be revised. Also, expect a strong bounce back in the second quarter with growth in excess of 3%
  3. On the positive side, consumer spending was up 3.0%, indicating the consumer is still with us. Meanwhile:
    • Investment in nonresidential structures advanced a modest 0.2%―holding its own after fourth quarter’s1.8% drop
    • Residential investment took a real hit, down 5.7% after plunging 7.9% in the fourth quarter
    • Reduction in inventories shaved 0.6% off first quarter GDP growth. Was this because bad weather kept companies from restocking or were companies still adjusting to earlier excess inventory accumulation? We believe the first is most likely. If so, restocking inventory will boost second quarter growth
    • Net exports reduced GDP growth by 0.8% largely due to goods exports plummeting 12.0%.The drop in goods exports was only partially offset by a 3.0% increase in service exports and a 1.4% decrease in imports
  1. The April NAHB/Wells Fargo Housing Market Index (HMI)advanced 1 point to 47 after holding at 46 for two months. The index has now been below 50 for three months in a row―a negative for single-family residential construction
  2. March new home sales plunged 14.5%to 384,000 (SAAR) following a 4.5% fall in February. On a year-to-date NSA basis, sales were down 1.8% compared to the same period last year
  3. The February 10-city and 20-city S&P/Case-Shiller® Home Price seasonally adjusted (SA) indexes increased 0.9% and 0.8%,respectively.The 10-city index has increased for 24 consecutive months, and the 20-city index has increased for 25 consecutive months. On a year-over-year NSA basis, the indexes were up 13.1% and 12.9%,respectively
  4. For all 20 cities, home prices on a year-over-year NSA basis have increased for 14 consecutive months
  5. The February SA Federal Housing Finance Agency’s (FHFA) Purchase-Only Home Price Index rose 0.6% following a 0.4% increase in January. On a year-over-year NSA basis, the index was up 6.9%
  6. The SA Producer Price Index (PPI) for finished goods slipped 0.1% in March after rising 0.4% in February. On a year-over-year NSA basis, the March PPI was up 1.7%
  7. A price index for inputs used in nonresidential construction, excluding capital equipment, rose 0.4% (NSA) in March after increasing 0.7% in February. The index was up 1.0% (NSA) from March 2013, while the PPI for inputs for residential construction was up 1.5% over the same period
  8. The March Consumer Price Index (CPI) advanced 0.2% (SA) following a 0.1% increase in February. The CPI was 1.5% (NSA) higher than in March 2013. Core CPI, which excludes food and energy prices, also increased 0.2% (SA) in March after rising 0.1% in February. The index was 1.7% higher than in March 2013


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