Economy | - Part 30

Weather Blamed for Existing Home Sales Drop

The National Association of Realtors reported that sales of existing homes fell 5.1 percent last month, from an annual rate of 4.87 million units in December to 4.62 million in January, due in large part to bad weather and low inventory.

Home prices also continued to rise and, combined with higher mortgage rates, these factors kept some buyers away as well during what is normally a very slow time of the year for home sales, requiring large seasonal adjustments that can make the data difficult to interpret.

January Existing Home Sales

The January sales rate was the lowest since July 2012 as first time buyers dropped to a record low of just 26 percent. Only 11 percent of January sales were foreclosures and 4 percent were short sales, down sharply from a year ago, as all-cash sales accounted for  33 percent of transactions. Investors were behind 20 percent of all home purchases last month with 70 percent of these being cash transactions.

Consistent with seasonal price weakness that is to be expected at this time of the year, the median existing home price fell from $198,000 in December to $188,900 last month, however, home values are 10.7 percent higher than a year ago.

Particularly after a winter like this, it’s a good idea to wait until spring to draw any conclusions about the health of the nation’s housing market.

Unemployment Now the Top Problem in U.S.

More evidence that the government’s official unemployment rate (i.e., the one that has been dropping steadily over the last year or so, but primarily as a result of people dropping out of the workforce) may not be a particularly good indicator of the health of the labor market comes via this Gallup poll where jobs vaulted into the top spot on America’s problem list.

Of course, the federal government’s recent tendency not to shoot itself in the foot about every six months has left a lot of people who, previously, thought Washington was our biggest problem looking for other problems and, as indicated below, they’ve settled in on the economy in general and jobs in particular.

Jobs Problem

Interestingly, just prior to the ill-fated launch of Obamacare, healthcare was seen as our number one problem as recently as five months ago and, of course, the government shutdown in the fall caused the spike in the black curve back in October.

Republicans have changed their views dramatically in just the last month as those saying government is our top problem fell from 26 percent in January to 15 percent in February while those citing the labor market jumped from 11 percent to 24 percent.

Tagged with:  

U.S. Inflation Remains Tame … For Now

The Labor Department reported that inflation was tame in January as consumer prices rose just 0.1 percent, up 1.6 percent from a year ago, as only modest overall energy price increases, due in part to bad winter weather, have been seen so far.

Electricity prices saw their biggest increase since March 2010 and both natural gas and fuel oil were more expensive, but these gains were partially offset by falling gasoline prices that have recently rebounded (the Energy Department said yesterday that gasoline prices are up 0.2 percent from a month ago). Overall, the energy index rose 0.6 percent last month and will likely rise again this month.


Shelter costs rose 0.3 percent in January and other services such as transportation and medical care also increased while the price of commodities fell. Apparel prices dropped 0.3 percent while new and used auto prices fell 0.3 percent and 0.5 percent, respectively.

Tagged with:  

Weather Blamed for Dismal Housing Starts

The Commerce Department reported(.pdf) that housing starts fell 16 percent last month, the sharpest decline in three years, and permits for new construction fell 5.5 percent.

As with many other recent economic reports, bad weather is getting much of the blame for the result, however, there were tremendous differences in homebuilding activity across the country in January as housing starts actually surged more than half in the Northeast. Large seasonal adjustments at a time of the year when new construction is normally at its lowest also make this data difficult to interpret.

Housing Starts

Housing starts fell from an annual rate of 1.048 million units in December to just 880,000 in January as new construction of single-family homes fell by 15.9 percent, virtually the same amount as the overall decline. The drop in building permits was less severe, down from a rate of 991,000 to 937,000 last month.

The rate of housing starts fell in three of the four U.S. regions, plunging 68 percent in the Midwest, down 17 percent in the West, and 13 percent lower in the South while starts jumped 62 percent in the Northeast where most of the bad weather was seen last month. Given the historic bad weather in the Southeast this month, next month’s report on February homebuilding activity is likely to be even worse than this one.

The Demise of U.S. Economic Growth

In Northwestern University economist Robert J. Gordon’s latest paper on why growth will slow “The Demise of U.S. Economic Growth: Restatement, Rebuttal and Reflections(.pdf)“, four factors are cited for why the red curve is likely to stay below the green curve in the graphic below – demography, education, inequality, and repaying debt.

Later in the paper, just after the discussion on debt and how the Congressional Budget Office is hopelessly optimistic about the return of stronger growth that will ease the burden of that debt, the red line is projected to the right and ends up at an uninspiring $86,000.

Gordon on Growth

Note that it is GDP per capita that is used here rather than GDP (per nation, if you will). The latter grossly distorts the underlying health of an economy simply because it is heavily influenced by population growth. In the U.S., population growth has slowed from almost two percent to less than one percent over the last half century, reason enough to doubt any return to four percent annual real growth as some still fancy.

Also note that the impact of technological innovations on growth is not now and will probably never be as profound as that seen many decades ago. The introduction and widespread use of electricity, automobiles, and the like during the left portion of the chart above were far more significant than anything seen in recent decades and, absent the arrival of friendly aliens willing to share, we probably won’t see anything like that again.

Tagged with:  
© 2010-2011 The Mess That Greenspan Made