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Is the News from July’s U.S. Jobs Report Too Good?

Friday, August 5th, 2022

Article source: ConstructConnect

It’ll be hard for anyone to find much fault with July’s Employment Situation report from the Bureau of Labor Statistics (BLS). The total number of jobs gained during the month was +528,000, which beat the previous six-month average of +461,000. Interestingly, it was just about a match for January-to-June 2021’s average of +533,000.

My concern is that the news may be too good. Will it instruct the Fed that the economy remains too hot, and is begging to be restrained by aggressive interest rate hikes beyond what are already expected? Will the Fed figure it needs to go past ‘neutrality’ (i.e., a federal funds rate of 3.50% as a ceiling) in its assault on inflation?

The most striking development is that the total U.S. jobs count has finally returned to a level approximately even with peak employment immediately prior to the onset of the pandemic.


July a Surprisingly Good Month for Stock Markets

Thursday, August 4th, 2022

It seems everyone is talking about recession. Are we already in one? Should we pencil one in for 2023? Is there any possibility one can be avoided entirely? Stock market investors in North America, Europe and Japan no longer seem terribly worried.

In July, eight key indices (as set out in Table 2) cast aside their cloaks of gloom and went looking for the sun again. NASDAQ performed best (+12.3% month to month), followed by the Russell 2000 (+10.4% m/m), S&P 500 (+9.1%), STOXX Europe (+7.9%), the DJI (+6.7%), the German DAX (+5.5%), Tokyo’s Nikkei (+5.3%) and London’s FTSE (+2.5%).

More than half of Q2 earnings have now been reported and results versus estimates have been better than expected. It must be acknowledged, though, that this is partly the result of downward revisions to target estimates due to a slowing economy. U.S. ‘real’ (i.e., after inflation) GDP change in Q1 of this year was -1.6% annualized and in Q2, -0.9%.

There are two kinds of confidence that have a great deal of bearing on where economies will meander next. The first of these is consumer confidence.


2 of the Key Aspects of Housing Affordability ̶ Mortgage Rates & Price

Wednesday, July 27th, 2022

You’ll often hear that the residential real estate market will be the first among all players in the economy to signal a cyclical change (e.g., from recession to recovery or vice versa) brought on by central bank interest rate action.

This is an important topic in the context of current worries about recession due to the Federal Reserve lifting its federal funds rate from essentially zero to a range between 1.50% and 1.75% and the Bank of Canada hiking its overnight rate from 0.25% to 2.50% in four steps since early March.

By the way, it’s not always true that new and resale home markets are ultra-responsive to interest rate moves. When the federal funds rate was lowered after the financial crisis of 2008-2009, it still took years for U.S. housing starts to regain anything like their former vigor.

The key determinants of housing demand are probably captured in the word ‘affordability’, which has several components, with mortgage rates and pricing taking precedence.

The latest Primary Mortgage Market Survey (PPMS) conducted by Freddie Mac has the conventional 30-year fixed rate mortgage in the U.S. now sitting at 5.54%. The average in 2021 was 2.96%.


In June, Jobs Creation Kept Chugging Along in U.S., was Derailed in Canada

Tuesday, July 12th, 2022

Article source: ConstructConnect

In the U.S. in June, according to the latest Employment Situation report from the Bureau of Labor Statistics, jobs creation maintained a strong pace, +372,000, although it didn’t quite keep up with the average through the first five months of this year, +474,000.

The seasonally adjusted (SA) unemployment rate stayed at the 3.6% level where it has been lodged for four months in a row now.

The 3.6% U rate is extremely low. There’s much talk by analysts and in media circles about a recession being imminent, or maybe even already underway. The speculation is reasonable given the rampant price inflation that is underway, the consequent hikes in interest rates being initiated by the Fed, and the darkening mood of consumers as reflected in confidence surveys.


The Math of Inflation and the Self-Correcting Base Level Effect

Friday, June 24th, 2022

Article source: ConstructConnect

Since climbing interest rates are a primary concern governing the outlook for construction activity and since the reason interest rates are being adjusted upwards by the Federal Reserve and the Bank of Canada is to slow the economy and dampen demand for many consumer goods, the topic of runaway inflation has taken on huge significance.

The rapid price inflation currently being experienced in the U.S. and Canada has roots in supply chain bottlenecks; worker shortages and exaggerated wage hikes; and the deleterious impact of the war in Ukraine on energy markets.

But there’s another cause and, like most things economic, it has a self-correcting aspect that will soon be kicking in and serving to modify the official reported year-over-year advances in the Consumer Price Index (CPI), which currently stand at +8.6% in the U.S. and +7.7% in Canada.

That self-correcting feature relates to the mathematics of the year-over-year CPI calculation and the ‘low base effect’. For many items in the CPI, the outsized percentage gains in price this year are at least partly due to the early recovery levels they’re being compared with from last year.


May was a Fine Month for Hiring in the U.S., Construction Included

Friday, June 3rd, 2022

Article source: ConstructConnect

The angst over whether all the talk about a possible looming recession may be affecting the U.S. jobs market can be set aside, at least temporarily, based on the latest Employment Situation report from the Bureau of Labor Statistics (BLS). May’s month-to-month change in the U.S. total jobs count was +390,000. That’s a little down from the year-to-date monthly average for 2022 of +490,000, but it’s still strikingly good.

The seasonally adjusted (SA) unemployment rate stayed at 3.6% for the third month in a row. The not seasonally adjusted (NSA) unemployment rate ticked up to 3.4% from 3.3% in April. But U rates in the mid-3.0% range are about as low as they ever go.

The construction sector achieved decent hiring success in May, with a gain in employment of +36,000 jobs. That was the second best monthly showing this year, behind only February’s +54,000.


Mapping ‘Starts’ to the Put-in-Place Numbers and Drawing Inferences

Thursday, June 2nd, 2022

Article source: ConstructConnect

The graphic featured below maps ConstructConnect’s type-of-structure categories for ‘starts’ to the Census Bureau’s put-in-place designations, while also showing year-to-date results for both series through April 2022.

As the text box says, ‘starts’ lead put-in-place numbers. Therefore, it’s possible to draw inferences concerning the likely future direction to be taken by many of the put-in-place sub-categories from the starts results.


Interest Rates, Housing Starts and Hoping the Canary Keeps Chirping

Thursday, May 26th, 2022

Article source: ConstructConnect

If stagflation is to occur (i.e., a period of no or slow growth accompanied by high inflation), as is being projected by many prognosticators, one of its accompanying features will be a moderation in new homebuilding activity. Neither in the United States nor in Canada has such a turn of events become evident just yet. The canary installed in stagflation’s mine shaft to warn, through an interruption in its backing vocals, of possible serious economic troubles ahead, has not yet ceased its chirping.

U.S. housing starts in April at 1.724 million units, seasonally adjusted and annualized (SAAR), were little different from March’s figure of 1.728 million units. Also, they were down only slightly from the highest monthly number in more than a decade, February’s 1.777 million units.

Furthermore, residential building permits are still running ahead of starts. The permits number nationally in April was 1.819 million units SAAR. Permits have lain between 1.8 million and 1.9 million units (SAAR) for five months in a row.


Cost-Push, Demand-Pull, Easy-Money, Fiscal-Excess Inflation

Thursday, May 19th, 2022

Article source: ConstructConnect

U.S. current (March) inflation of +8.5% year over year for the All-items Consumer Price Index (i.e., known as CPI-U, with the ‘U’ signifying that it’s for urban consumers) is the highest this century. It’s more than four times greater than the +2.0% figure usually accepted as the desirable target. A little inflation is judged to be a good thing for the economy. Through making it easier to pay off loans, it greases the wheels of industry.

What +8.5% is not, though, is unique in a historical context. From 1951 through 1981, there were 59 months, or the equivalent of nearly five years, in which CPI-U exceeded +9.0% y/y. The most notable periods of extreme inflation occurred from January 1974 through July 1975 and from December 1978 through November 1982. Peak inflation was +14.8% y/y, recorded in March 1980.

There’s a great tradition among economists of arguing over what causes inflation. The discourse has pitted money supply theorists against those who keep a wary eye on excessive fiscal deficits. Plus, there’s the cost-push versus demand-pull impact to be sorted out.


Deciphering the Meaning of March’s U.S. Construction Put-in-place Stats

Tuesday, May 17th, 2022

Article source: ConstructConnect

Table 1 is a one-place depiction of the key percentage-change metrics for the 2022 Q1 put-in-place (PIP) construction dollar volume statistics from the Census Bureau.

Total year-to-date spending is ahead by +12.0, owing more to residential, at +18.6%, than to nonresidential, +5.8%. The dollar volumes on which the percentage changes are based are in ‘current’ dollars. ‘Constant’ dollars would factor out inflation.

Given the exceptional advances in material input costs over the past year (see ‘Spikes Everywhere’ article here), and some decent-sized jumps in compensation rates as well, there’s a good chance the nonresidential percentage change year to date (+5.8%) would be close to zero or even possibly negative, if a price index were applied to the results.


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