Residential Investment – Easy Trends (Q2 2015 – Second Estimate)

Residential investment is one of the best leading indicators for the general economy, meaning that what happens to residential investment typically ends up happening to the general economy a few months later. I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for residential investment and discuss whether it is currently going up, down or neither. You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest residential investment trends analysis for more info.

Quick ‘n Easy

Residential investment refers to money that people spend on buying homes (either to live in or to rent out), home improvements and money people make on the sale of homes. There is also some inclusion of equipment that come with many homes. We care about how much private residential investment is taking place because it is a great leading indicator for what will happen to the general economy several months down the line.

The Bureau of Economic Analysis (BEA), the same group that publishes the GDP for every quarter, defines “residential fixed investment” as the following:

Consists of purchases of private residential structures and residential equipment that is owned by landlords and rented to tenants. Investment in residential structures consists of new construction of permanent-site single-family and multi-family units, improvements (additions, alterations, and major structural replacements) to housing units, expenditures on manufactured homes, brokers’commissions on the sale of residential property, and net purchases of used structures from government agencies. Residential structures also include some types of equipment that are built into residential structures, such as heating and air-conditioning equipment.

In other words, residential investment refers to money that people spend on buying homes (either to live in or to rent out), home improvements and money people make on the sale of homes. There is also some inclusion of equipment that come with many homes.

Why do we care about residential investment? It just so happens to be a fantastic leading indicator, which means that whatever happens to this indicator generally happens to the general economy several months down the road. One more thing – we care most about private residential fixed investment, not so much what the government spends. That’s what shows us the real trend in the economy.

Here’s a historical chart of private residential fixed investment over the last five years provided by the Federal Reserve Bank of St. Louis:

Residential Investment - Real Private Residential Fixed Investment - Q2 2015 Second Estimate - FRED

Source: StLouisFed.org

Residential Investment Trends and Projections

Below, I will discuss whether residential investment is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. I usually start my analysis from three years ago. continue reading…

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GDP (Real Gross Domestic Product) – Easy Trends (Second Estimate Q2 2015)

GDP (or Real Gross Domestic Product) is the accepted measure of overall economic activity, so we should care which way it’s trending. I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for real GDP and discuss whether it is currently going up, down or neither. You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis. Please visit my latest GDP trends analysis for more info.

Quick ‘n Easy

Real GDP is simply the broadest and most widely accepted measure of economic activity. Even though there are specific details of it that many dispute, you can typically be assured that if this number is increasing consistently, things are going well in the economy.

You can read my Easy Intro to GDP for more information on what the Gross Domestic Product represents. Suffice it to say, it’s a broad measure of economic activity. If this number is growing, it is generally a good sign. We probably want to see levels up in the 3 to 3.5 percent annual growth range for signs of an economy that’s growing at a healthy pace. When the unemployment rate is too high, however, you need to have even more growth than that to put a dent in the unemployment figure.

Here’s a historical chart of real GDP annualized growth rate for each quarter from Doug Short, including lines that show the historical average growth rate and the 10-year moving average:

Real GDP Q2 2015 Second Estimate - Doug Short

Courtesy: AdvisorPerspectives.com/DShort/

GDP Trends and Projections

Below, I will discuss whether real GDP (real gross domestic product) is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. I typically start my analysis from three years ago. continue reading…

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Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending August 22, 2015 – Easy Trends

In this article, I’ll do an “Easy Trends” analysis of the initial weekly unemployment claims data.  “Easy Trends” is a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest unemployment claims trend analysis for more info.

Quick ‘n Easy

By tracking the number of people who are filing for unemployment benefits for the first time each week, we get a quick insight into the latest status of the economy’s health.  Fewer claims equals more jobs, which equals more income, which usually equals more consumer spending (70% of the economy!) that supports company profits, which in turn can lead to more hiring.

Quick Version of Easy Trends Analysis

For the Initial Weekly Unemployment Claims series, I will be doing only a brief update as long as the level of claims is super low (below 300,000) or just low (below 350,000) but without a confirmed upward trend (which is undesirable of course). I will only call out a few specific statistics that I like to track. I’ll be tracking the trends, but it takes a lot of time to do the post, so I won’t do a post with the full analysis unless there is any cause for concern. Bottom Line: If you’re seeing my “quick version” of this analysis – don’t be worried about weekly jobless claims!

NOTE: The last time I did a full update was for the week ending March 7, 2015

4-week moving average of weekly initial unemployment claims: 272,500   (Excellent – we want this number to be below 350,000)

4-week moving average of weekly initial unemployment claims as a percent of the total size of the nation’s workforce: 0.17 percent   (Excellent)

Current Trend: Unconfirmed upward trend of about 3,250 more claims per week.   (Bad but unconfirmed)

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New Residential Homes Sales and Inventory Months of Supply – Easy Trends (thru July 2015)

Sales of new residential homes contributes to the GDP, and the level of supply can indicate something about prices. I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator (in this one, it is new residential homes sales and inventory) and discuss whether it is currently going up, down or neither. You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis. Please visit my latest new residential homes inventory months of supply trend analysis for more info.

Quick ‘n Easy

For new residential homes reports, there are two key things to look at: 1) number of homes sold and 2) inventory of homes for sale. When there are too many new residential homes still left unsold (inventory) on the market, it usually means that prices will be dropping because supply is greater than demand. A good way of measuring the inventory is to calculate how long it would take that inventory to sell at the current pace of sales. The normal level of supply for new residential homes is a little less than 6 months.

For new residential homes reports, there are two key things to look at: 1) number of homes sold and 2) inventory of homes for sale. We care about the number sold because each one contributes to the overall economy (builders get paid, brokers get paid, companies that made the raw materials get paid, etc). We care about inventory because when there are too many new residential homes still left unsold (inventory) on the market, it usually means that prices will be dropping because supply is greater than demand. The opposite is true if there is very low inventory. A good way of measuring whether current levels of new residential homes are too high or too low is to calculate how long it would take the current inventory to sell at the current annual pace of sales. For example, if there are 150,000 unsold new residential homes with the most recent report saying the annual pace of sales was 225,000, here’s what the calculation would look like:

Example:
225,000 new residential homes sold per year
divide by 12 to get 18,750 new residential homes sold per month
150,000 unsold homes divided by 18,750 sold per month = 8 months supply

Here’s a graph of the New Residential Homes Sales followed by Inventory Months of Supply from Calculated Risk:

New Residential Homes Sales July 2015 - Calculated Risk

Courtesy: CalculatedRiskBlog.com

New Residential Homes Inventory Months of Supply July 2015 - Calculated Risk

Courtesy: CalculatedRiskBlog.com

New Residential Homes Trends and Projections

Below, I will discuss whether the indicators are currently in a trend, when the last confirmed trend was and what that says about projecting the next data points to be released. I usually start my trend analysis from about three years ago.

continue reading…

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Economic Indicators Roundup (August 25, 2015)

Economic indicators are everywhere, so this is kind of like a dashboard that I like to follow.  For each indicator, I will try to give you a brief description, the latest reading and what I understand to be its implications.  For simplicity, I will assign each a rating of positive, neutral or negative.  For the economic indicators, I will denote in each one’s section how I decide which rating to give it.  At the end, I assign an overall rating, but this is just to guide me in my takeaway of where things stand.  It’s not scientifically rigorous or anything.

  • Positive – indicative of a healthy, growing economy.
  • Neutral – indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative – indicative of a shrinking economy or recession.

(NOTE: For a “Quick ‘n Easy” read, just review the labeled white boxes, then skip to my “Easy Take” summary at the end.  You can review any charts/graphs afterward.  I want to make sure no one is intimidated by the length of my posts, even though I’m trying to making them easy …)


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change from previous roundup)
GDPNow (GDP Forecast from Atlanta Fed) Neutral
ADS Business Conditions Index Positive
Bloomberg Financial Conditions Index Negative   (Two-level downgrade)
Big Four Economic Indicators Neutral
Daily Consumer Leading Indicators Negative
Employment Trends Index Positive
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive
 Citigroup Economic Surprise Index Reports slightly worse than expectations
Easy Trends Dashboard   (min/max -3 to +3) +2.00 = Very likely moving in a positive direction with a few unconfirmed trends or trends in a bad direction

NOTE: You may be reading an outdated analysis.  Please visit my latest economic indicators roundup.



Economic Indicator: GDPNow   |   NEUTRAL
Easy Intro: None yet   |   Link to Source   |   Latest Date This Info Represents: 3rd Quarter 2015 (i.e., three months ending September 2015)

Quick ‘n Easy

The current forecast for real GDP growth in the 3rd quarter of 2015 is 1.3 percent – below-average growth by historical standards. The Federal Reserve Board of Atlanta combines a whole bunch of public data to mimic what the government does when reporting Gross Domestic Product (GDP), which is the broadest and most comprehensive measure of the economy that is widely accepted. It basically measures the value of all goods and services produced in the country, regardless of industry. In a sense, that’s what economics is all about, the value of things. The rate at which GDP is growing tells us whether our economy is strong or not. Historically, the average has been about 3.3 percent per year. It would be great to see at least that rate of growth.

Economic Indicators - GDPNow from Atlanta Fed - Aug 18 2015

Source: FRBAtlanta.org

Easy Description: GDPNow is a frequently updated estimate of the growth rate of the economy (GDP growth) as opposed to having to wait for quarterly estimates from the Bureau of Economic Analysis for “official” figures.

Latest Readings:

3rd Quarter of 2015: On August 18, GDPNow is positive (+) 1.3 percent annualized growth rate (versus 1.0 percent on Aug 6)

NOTE: “Annualized growth rate” is how much growth we would see over a full year if economic growth continued at the same pace as it did in the latest quarter being forecast.

Implications: After revisions,  the 1st quarter of 2015 wasn’t negative after all but barely grew, and we predictably saw a bounce back in the 2nd quarter. Now, it’s very early, but the latest indications of 3rd quarter growth suggest the bounce back was short lived. I suspect this forecast will improve as we get actual data come in, so don’t get too worried just yet.

Easynomics Rating Methodology: For this index, I will use data on the most recent quarter available. If the latest GDPNow estimate refers to a quarter for which there is already an official BEA reading, then I will go with the BEA reading. I will rate anything between zero and (+) 3.3 as “neutral” – anything above or below that will be rated “positive” or “negative” respectively.

continue reading…

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Existing Homes Sales and Inventory Months of Supply (thru July 2015)

Most of homes sold are existing homes sales, so it is an important area of the housing sector to follow. I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither. You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis. Please visit my latest existing homes sales and inventory months of supply trend analysis for more info.

Quick ‘n Easy

Typically, if it would take longer than 6 months for the unsold inventory of existing homes (not newly built) to be sold at the latest pace of sales, we can expect prices for existing homes to go down. If it’s less than 6 months, we can expect prices to go up.

You can get a sense for whether there are too many existing homes still on sale (inventory) by taking the total inventory and dividing it by the pace of sales. The result is “months of supply,” which basically means that if existing homes were to continue selling at the same rate as the most recent month of data, the current inventory of homes would be sold by that many months. A normal reading is around 6 months – higher number means too much inventory, and if supply is greater than demand, that usually means prices will drop.

Here’s a chart of the Existing Homes Inventory Months of Supply from Calculated Risk: (focus on the red line)

NOTE: The chart below is not updated for July because Calculated Risk is on vacation. I will attempt to update this when the blog is updated.

Existing Homes Months of Supply June 2015 - Calculated Risk

Courtesy: CalculatedRiskBlog.com

Existing Homes Sales Trends and Projections

Below, I will discuss whether the indicator is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. I typically start my analysis from three years ago. continue reading…

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