by Calculated Risk on 1/02/2015 11:31:00 AM

The Census Bureau reported that overall construction spending decreased in November:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2014 was estimated at a seasonally adjusted annual rate of $975.0 billion, 0.3 percent below the revised October estimate of $977.7 billion.

Private spending increased and public spending decreased in November:

Spending on private construction was at a seasonally adjusted annual rate of $697.7 billion, 0.3 percent above the revised October estimate of $695.7 billion. Residential construction was at a seasonally adjusted annual rate of $352.7 billion in November, 0.9 percent above the revised October estimate of $349.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $345.0 billion in November, 0.3 percent below the revised October estimate of $346.1 billion. ...

In November, the estimated seasonally adjusted annual rate of public construction spending was $277.3 billion, 1.7 percent below the revised October estimate of $282.0 billion.
emphasis added

Note: Non-residential for offices and hotels is increasing, but spending for oil and gas is generally declining (up slightly in November from October). Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

As an example, construction spending for lodging is up 11% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 48% below the peak in early 2006 - but up 54% from the post-bubble low.

Non-residential spending is 18% below the peak in January 2008, and up about 53% from the recent low.

Public construction spending is now 15% below the peak in March 2009 and about 5% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now unchanged. Non-residential spending is up 5% year-over-year. Public spending is up 3% year-over-year.

Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has probably hit bottom after several years of austerity.

This was below the consensus forecast of a 0.5% increase, however there were some upward revisions to spending in September and October.

by Calculated Risk on 1/02/2015 10:00:00 AM

The ISM manufacturing index suggests slower expansion in December than in November. The PMI was at 55.5% in December, down from 58.7% in November. The employment index was at 56.8%, up from 54.9% in November, and the new orders index was at 57.3%, down from 66.0%.

From the Institute for Supply Management: December 2014 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in December for the 19th consecutive month, and the overall economy grew for the 67th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The December PMI® registered 55.5 percent, a decrease of 3.2 percentage points from November’s reading of 58.7 percent. The New Orders Index registered 57.3 percent, a decrease of 8.7 percentage points from the reading of 66 percent in November. The Production Index registered 58.8 percent, 5.6 percentage points below the November reading of 64.4 percent. The Employment Index registered 56.8 percent, an increase of 1.9 percentage points above the November reading of 54.9 percent. Inventories of raw materials registered 45.5 percent, a decrease of 6 percentage points from the November reading of 51.5 percent. The Prices Index registered 38.5 percent, down 6 percentage points from the November reading of 44.5 percent, indicating lower raw materials prices in December relative to November. Comments from the panel are mixed, with some indicating that falling oil prices have an upside while others indicate a downside. Other comments mention the negative impact on imported materials shipment due to the West Coast dock slowdown."
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 57.5%, but still indicates decent expansion in December.  The West Coast port issue is ongoing.

by Calculated Risk on 1/01/2015 08:47:00 PM

From Nick Timiraos at the WSJ: Housing Market Enters 2015 Facing Affordability Pressures

Some of the price declines were exacerbated by a glut of foreclosures. The subsequent rebound reflected increased investor demand for those bargain-priced properties ...

As foreclosures have faded and investor-purchasers stepped back from the market, price gains have slowed. In October, home prices had increased 4.6% from their year-earlier level, compared to a year-over-year gain of 10.9% in October 2013.

An open question in the coming year is whether price gains stabilize at those lower levels or whether they weaken further. Research firm Zelman & Associates expects price gains of 4% in 2015 and 3% in 2016.

But some market specialists say prices may need to give if sales are to rise. “In a few markets, there will be price declines,” [Glenn Kelman, chief executive of real-estate brokerage Redfin] said, “and maybe in more than a few.”

Friday:
• At 10:00 AM ET, the ISM Manufacturing Index for December. The consensus is for a decrease to 57.5 from 58.7 in November. The ISM manufacturing index indicated solid expansion in November at 58.7%. The employment index was at 54.9%, and the new orders index was at 66.0%.

• Also at 10:00 AM, Construction Spending for November. The consensus is for a 0.5% increase in construction spending.

by Calculated Risk on 1/01/2015 11:24:00 AM

Happy New Year! I did my part last night to help the restaurant index for December :-)

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Remains in Positive Territory

Buoyed by positive sales and traffic and an optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) remained in positive territory in November. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.1 in November, down slightly from its October level of 102.8. November marked the 21st consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The RPI registered a modest decline in November, as sales and customer traffic results were somewhat softer than their solid October levels,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, a majority of restaurant operators still reported higher same-store sales in November, and they are increasingly optimistic that business conditions will continue to improve in the months ahead.”

“Overall, the RPI topped the 102 level for the second consecutive month in November, the first such occurrence in nearly nine years,” Riehle added.
emphasis added

Click on graph for larger image.

The index decreased to 102.1 in November, down from 102.8 in October. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is another solid reading - and it is likely restaurants are benefiting from lower gasoline prices.

by Calculated Risk on 12/31/2014 07:22:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'm adding some thoughts, and a few predictions for each question. Here is a review of the Ten Economic Questions for 2014.

1) Economic growth: Heading into 2015, most analysts are pretty sanguine. Even with contraction in the first quarter, 2014 was a decent year (GDP will grow around 2.4% in 2014). Will 2015 be the best year of the recovery so far? Could 2015 be the best year since the '90s? Or will 2015 disappoint again?

First, here is a table of the annual change in real GDP since 1999.  Since 2000, the fastest real GDP growth was 3.8% in 2004, and the fastest growth for the recovery was 2.5% in 2010.

Economic activity clearly picked up in 2014 after the first quarter, however - due to severe weather - the economy contracted in Q1 and the economy only grew around 2.4% for the year (estimated).

Perhaps 2015 will be the year with 3%+ growth!

Annual Real GDP Growth
Year	GDP
1999	4.7%
2000	4.1%
2001	1.0%
2002	1.8%
2003	2.8%
2004	3.8%
2005	3.3%
2006	2.7%
2007	1.8%
2008	-0.3%
2009	-2.8%
2010	2.5%
2011	1.6%
2012	2.3%
2013	2.2%
20141	2.4%
1 2014 estimate.

All of the positives that led to the pickup in activity in 2014 are still present - the housing recovery is ongoing, state and local government austerity is over, household balance sheets are in much better shape and household deleveraging is over, and commercial real estate (CRE) investment (ex-energy) and public construction will both probably make positive contributions in 2015.

In addition, the sharp decline in oil prices should be a net positive for the US economy in 2015.  Plus the Federal government austerity is now ending (although there is the risk of more cuts).

A possible negative would be less exports due to the strong dollar.

Lower gasoline prices suggest an increase in personal consumption expenditures (PCE) excluding gasoline. And it seems likely PCE growth will be above 3% in 2015.  Add in some more business investment, the ongoing housing recovery, some further increase in state and local government spending, and 2015 should be the best year of the recovery with GDP growth at or above 3%.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?