by Calculated Risk on 1/28/2011 11:52:00 AM

A couple more graphs from the GDP report, and the final consumer sentiment for January ...

Click on graph for larger image in graph gallery.

Residential Investment (RI) increased slightly in Q4, but as a percent of GDP, RI is near a post-war low at 2.24% - essentially unchanged from Q3.

Some people have asked how a sector that only accounts for 2.2% of GDP could be so important? The answer is that usually RI accounts for a large percentage of the employment and GDP growth in the first year or so of a recovery (and increases in RI have a positive impact on other areas like furniture, etc). Not this time because of the huge overhang of existing vacant units.

I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

I expect RI to increase in 2011 and add to both GDP and employment growth - for the first time since 2005!

The second graph shows non-residential investment in structures and equipment and software.

Equipment and software investment has been increasing sharply, although investment growth slowed in Q4 to a 5.8% annualized rate.

Non-residential investment in structures is near a record low and will probably stayed depressed for some time. I expect non-residential investment in structures to bottom later this year, but the recovery will be very sluggish for some time with the high vacancy rates for offices and malls.

The final Reuters / University of Michigan consumer sentiment index for January was at 74.2. This was up from the preliminary report of 72.7, and down from 75.2 in December.

This was slightly above the consensus forecast of 71.3, but the level is very low and well below the pre-recession levels.

by Calculated Risk on 1/28/2011 08:30:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.2 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.

Click on graph for larger image in graph gallery.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the median growth rate of 3.05%. Growth in Q4 at 3.2% annualized was slightly above trend growth - weak for a recovery, especially with all the slack in the system.

A few key numbers:
• The change in real private inventories subtracted 3.70 percentage points from the fourth-quarter change in real GDP after adding 1.61 percentage points to the third-quarter change.

GDP would have been very strong without this change in private inventories. This was offset by a postive contribution from Net exports of goods and services of 3.44 percentage points.

• Real personal consumption expenditures increased 4.4 percent in the fourth quarter, compared with an increase of 2.4 percent in the third.

• Investment: Nonresidential structures increased 0.8 percent, equipment and software increased 5.8 percent and real residential fixed investment increased 3.4 percent.

The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, blue.

Residential Investment (RI) made a small positive contribution to GDP in Q4 2010, and the four quarter rolling average is negative again following the slight boost from the tax credit early in 2010.

Equipment and software investment has made a significant positive contribution to GDP for six straight quarters (it is coincident).

The contribution from nonresidential investment in structures was slightly positive in Q4, although this will probably be revised down.

The key leading sector - residential investment - has lagged this recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.

by Calculated Risk on 1/27/2011 11:32:00 PM

UPDATE:
• On February 23rd, the National Association of Realtors (NAR) will release revisions for the past three years (2008 through 2010) along with the January existing home sales report. This is the ordinary annual revision, and the revisions will probably be minor.

• The NAR is working on benchmarking existing home sales for previous years with other industry data. There is no planned release date for these possible revisions - if any are announced. The process is expected to be completed sometime after mid-year, and I expect this effort will lead to significant downward revisions to previously reported sales.

Original post:

This morning I noted:

I've been discussing the National Association of Realtors (NAR) existing home sales data with several analysts. ... I think the NAR started over estimating sales in 2006 or 2007 ... and the errors have increased since then ... I expect the NAR will revise down sales for these years in the not too distant future ...

The NAR is planning on releasing revisions for the past three years (2008 through 2010) on February 23rd along with the January existing home sales report. Many housing analysts expect these revisions to be significant - and to be down. Assuming the revisions are down, this will also reduce the "distressing gap" between existing and new home sales.

Click on graph for larger image in new window.

Here is a repeat of the graph showing existing home sales (left axis) and new home sales (right axis) through December. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

After the housing bubble and bust, the "distressing gap" appeared due mostly to distressed sales. Even with a significant downward revision to existing home sales (say 10% or even 15%) that will only reduce the "distressing gap" a little.

by Calculated Risk on 1/27/2011 08:26:00 PM

From the Telegraph: Egypt protests: Mubarak rival flies to Egypt as the revolt gathers pace

For the past three days, the revolt against Mr Mubarak has been one of unadulterated people-power, galvanised by the internet and word of mouth and driven by the young.

Disgruntled Egyptians from different classes and different parts of the country have joined the cause, shedding a fear of authority that has become part of the country's collective psyche. It is this growing confidence of the masses, inspired by Tunisia's Jasmine Revolution, which has so unnerved the authorities.

From the Financial Times: ElBaradei return raises stakes in Egypt

The 68-year-old Mr ElBaradei, a former Egyptian diplomat and ex-chief of the International Atomic Energy Agency, told reporters in Cairo that he would take part in protests that opposition parties and a youth protest movement have called for following Friday prayers.

“The barrier of fear is broken and it will not come back,” he said.
excerpt with permission

From the NY Times: Thousands in Yemen Protest Against the Government

Yemen, one of the Middle East’s most impoverished countries and a haven for Al Qaeda militants, became the latest Arab state to witness mass protests on Thursday, as thousands of Yemenis took to the streets in the capital and other regions to demand a change in government.

This has a 1989 feel to it, but I fear the outcome will not be as successful - or as peaceful.

by Calculated Risk on 1/27/2011 05:04:00 PM

Another ditty from Merle - this one on Germany (short to fit the time slot on Paul Solman's Making $ense (Solman is discussing Europe this week).

Note:
There is a a European debt woes lyric contest with Merle here.

For an overview of the entire series, watch a web chat video between Paul Solman and Merle over on Making Sen$e.

by Calculated Risk on 1/27/2011 02:38:00 PM

This month has been tough for hotel occupancy with only a small increase over the very low levels for the same period a year ago (includes the holidays). Here is the weekly update on hotels from HotelNewsNow.com: San Francisco tops weekly hotel performance

Overall, the U.S. hotel industry’s occupancy increased 6.5% to 49.8%, ADR was up 2.6% to US$96.39, and RevPAR finished the week up 9.3% to US$47.99.

The following graph shows the four week moving average of the occupancy rate as a percent of the median occupancy rate from 2000 through 2007.

Click on graph for larger image in graph gallery.

Note: I've changed this graph. Since this is the percent of the median from 2000 to 2007, the percent can be greater than 100%.

The down spike in 2001 was due to 9/11. The up spike in late 2005 was hurricane related (Katrina and Rita). The dashed line is the current level.

This shows how deep the slump was in 2009 compared to the period following the 2001 recession. This also shows the occupancy rate improvement has slowed sharply over the last month (only about 92% of the median from 2000 to 2007).

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com