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U.S. new home sales rise in April
May 23, 2013
- The pace of new home sales climbed 2.3% to an annualized 454,000 in April 2013, which was above market expectations for a 425,000 reading, and followed a 3.5% increase to an upwardly revised 444,000 pace in March that was significantly stronger than the initially reported 417,000.
- The inventory of new homes available for sale rose 3.3% to 156,000 units; however, with the increase in sales, inventories remained relatively tight with the months’ supply of homes available for sale holding steady at 4.1, which was unchanged from March and well below the longer-run average closer to 6.
- The median new home price jumped 14.9% from its year-ago level and marked an improvement in the annual pace of price growth from the 4.5% increase in March.
- The rise in the pace of new home sales in April left the measure 2.3% above the average of 444,000 units in the first quarter of 2013 and 29% above its year-ago level. Year-to-date sales are running 21.2% above the annual sales pace in 2012. The improving demand for new homes, along with the earlier indications of a similar trend for existing homes, is occurring in the face of tight supply conditions that are contributing to rising home prices and are supporting improvement in construction activity. In addition to directly supporting employment, construction, and sales activity in the real-estate sector, ongoing improvement in housing markets is likely helping to underpin consumer confidence and spending, thereby providing welcome support to private-sector demand and some offset to a sizeable near-term fiscal contraction.
Sales of new single-family homes in the US rose 2.3% to an annualized 454,000 units in April 2013 and built on an upwardly revised 3.5% increase to 444,000 in March (previously reported as 417,000). The level of sales in April was above market expectations for a 425,000 reading. The increase in April sales was concentrated in the West (10.8%) and South (3.0%) with partial offsets provided by a 16.7% drop in the Northeast and a 4.8% decline in the Midwest.
The inventory of unsold new homes increased by 3.3% to 156,000 in April from 151,000 in March; however, this was offset by the increase in the monthly sales pace that left the months’ supply of new home available for sale steady at 4.1, which was unchanged from a downwardly revised 4.1 reading in March (previously was 4.4) and represented a historically tight supply compared to the longer-run average that is closer to 6.
The median new home price jumped 14.9% from its year-ago level that marked an improvement in the annual pace of price growth from the 4.5% increase in March.
The rise in the pace of new home sales in April left the measure 2.3% above the average 444,000 units in the first quarter of 2013 and 29% above its year-ago level. Year-to-date sales are running 21.2% above the annual sales pace in 2012. The improving demand for new homes, along with the earlier indications of a similar trend for existing homes, is occurring in the face of tight supply conditions, which are contributing to rising home prices and supporting improvement in construction activity. In addition to directly supporting employment, construction, and sales activity in the real-estate sector, ongoing improvement in housing markets is likely helping to underpin consumer confidence and spending, thereby providing welcome support to private-sector demand and providing some offset to a sizeable near-term fiscal contraction.
Nathan Janzen, Economist, RBC Economics
U.S. initial claims dropped in the week ending May 18
- US initial claims dropped 23,000 the week ending May 18, 2013 after jumping 35,000 to an upwardly revised 363,000 (was 360,000) the previous week. The decline in the latest week left the level of claims below market expectations for a 345,000 reading.
- The four-week moving average of initial claims, which better controls for weekly volatility, was little changed, dipping modestly to 339,500 from 340,000 the previous week. Continuing claims for the week ending May 11, 2013 declined by 112,000 to 2,912,000. This marked the first time the measure has been below the 3,000,000 mark since May 2008.
- The drop in claims in the latest week, which also happened to coincide with the May payroll employment survey week, still did not retrace all of the jump from the previous week; however, the, albeit modest, dip in the four-week moving average left the measure well below its 362,000 level from a month ago and still showing relatively little effect from the sizeable government sequestration cuts that took effect in March. A drop in hours worked in the private sector in April despite a respectable 179,000 gain in private employment suggested that businesses may so far have opted to cut back on hours rather than lay off workers. As well, it remains possible that uncertainty about the fiscal outlook could cause business to delay hiring going forward; however, today’s report remained consistent with our expectation that underlying improvement in labour market conditions will allow for continued respectable job growth despite significant fiscal contraction.
Nathan Janzen, Economist, RBC Economics
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Recent Economic Updates
U.S. highlights of the Minutes from the April 30 and May 1 FOMC meeting
May 22, 2013
The Minutes of the April 30 and May 1, 2013 Federal Open Market Committee (FOMC) meeting provide the details of the discussion surrounding the Committee’s decision to make no changes to its monetary policy stance.
Committee members viewed the information received during the period since the March FOMC meeting as suggesting that the economy was expanding at a moderate pace “despite some softness in recent economic data.” Participants viewed the outlook as little changed since March, with growth expected to “proceed at a moderate pace and result in a gradual decline in the unemployment rate” toward levels consistent with the Fed’s dual mandate. With that said, recent data raised some concern that the recovery may be slowing after a solid start to 2013, “thereby repeating the pattern observed in recent years.” A “number” of participants noted that risks to the outlook remain skewed to the downside, although a “couple” of participants suggested that such risks have diminished significantly since last fall. A “few” participants warned that economic data could remain soft “for the next few months” regardless of the underlying strength of the US economy due to the ongoing fiscal restraint and a weak global outlook.
The discussion of monetary policy focused on the conditions under which it may be appropriate to change the pace of asset purchases. While most meeting participants agreed that labour market conditions have shown progress since the current asset purchases program was started in September, “many” indicated that “continued progress, more confidence in the outlook, or diminished risks” would be required before slowing the pace of purchases would become appropriate. A “number” of participants expressed a willingness to begin tapering asset purchases as early as June if economic data received by that time “showed evidence of sufficiently strong and sustained growth”, although views differed on what evidence would specifically be necessary as well as the likelihood of that outcome. As well, one participant preferred to “begin decreasing the rate of purchases immediately”, while another expressed a preference to increase the level of monetary accommodation at the meeting. Recall that the minutes from the March meeting indicated that a “few” participants viewed that it would likely be appropriate to scale back purchases “around mid-year”, “several others” thought that it would be appropriate to slow purchases “later in the year and to stop them by year-end”, two wanted to continue purchases at the current pace “through the end of the year”, and one wanted an immediate reduction in purchases. In terms of the composition of asset purchases, one participant expressed the view that given the substantial improvement in housing market activity and in an effort to avoid further “credit allocation across sectors of the economy”, the FOMC should start to shift any purchases toward Treasuries and away from mortgage-backed securities (MBS).
In terms of the statement, the addition of the comment that the FOMC “is prepared to increase or reduce the pace of its purchases” to the May policy statement stemmed from the Committee’s view that it needed to communicate clearly that the pace and ultimate size of the asset purchase program was dependent on the FOMC’s continued assessment of the outlook as well as its views on the effectiveness and costs of further asset purchases.
The Fed’s meeting minutes did not shed much light on the Fed’s plans regarding the timing of the end of its current open-ended asset purchase program. Given the concerns and uncertainty about how quickly the US economy reaccelerates, we expect that the Fed will maintain the current pace of security purchases during the summer and into the fall. As economic momentum becomes more firmly established in the second half of 2013, we anticipate that the Fed will begin tapering its purchases toward the end of this year followed by a cessation of purchases in 2014. Growth in this year and next, however, is unlikely to be sufficient to bring the unemployment rate below the Fed’s 6.5% threshold during this period. This supports the case for the Fed to maintain an accommodative policy stance, with the fed funds rate target to be held in its current range of 0.00% to 0.25% into 2015.
David Onyett-Jeffries, Economist, RBC Economics
U.S. existing home sales in April rise to highest level since November 2009
- Existing home sales in the US rose to 4.97 million annualized units in April 2013 from March’s revised 4.94 million sales (initially reported as 4.92 million). Market expectations had been for sales of 4.99 million annualized units.
- The inventory of homes available for sale jumped by 11.9% to a seven-month high of 2.16 million units. The month’s supply of unsold homes rose to 5.2 from 4.7 in the previous month, but this is still well below the historical average of 6.4 months and indicative of tight supply conditions in the resale market.
- The median price of existing homes increased to 11.0% on a year-over-year basis as the share of distressed property sales declined from a year ago.
- Existing home sales have increased in seven consecutive quarters through the first quarter of 2013, and the modest increase in resale activity to kickoff the second quarter reported today pointed to that streak extending to eight. The steady increase in demand for housing is keeping inventories of existing homes lean and spurring on a pickup in homebuilding activity from recessionary lows. We anticipate that these improving trends in the housing market will continue in the near term, which would be consistent with the residential investment component of real GDP providing a key support to the ongoing expansion of the overall economy during the coming year.
An annualized 4.97 million existing homes were sold in the US in April 2013, which was a 0.6% increase from the revised 4.94 million annualized units sold in March (initially reported as 4.92 million). This represented the highest level of existing home sales since November 2009 when the market spiked in response to the homebuyers’ tax credit; however, it was slightly less than the 4.99 million sales expected by the market. The modest pickup in resale activity in April reflected a 1.2% increase in sales of single-family homes (to 4.38 million annualized units) in the month that more than offset the 3.3% decline in condo and condo sales (to 0.59 million). Existing home sales rose in the South (2.0%), West (1.7%), and Northeast (1.6%), while activity moderated in the Midwest (-3.4%).
The total number of existing homes available for sale jumped 11.9% to a seven-month high of 2.16 million units in April. At the current pace of sales, it would take 5.2 months to clear this inventory of unsold homes, which is up from 4.7 in the previous month but still well below the historical average of 6.4 months and indicative of tight supply conditions in the resale market. Against lean inventories and with the share of distressed sales shrinking (down to 18% of total sales in April 2013 from 21% in March and 28% in April 2012), house prices continue their upward trend. The US$192,800 median sales price represented an 11.0% increase over the year-ago level and marked the fourteenth consecutive month of annual price increases.
Existing home sales have increased in seven consecutive quarters through the first quarter of 2013, and the modest increase in resale activity to kickoff second quarter reported today pointed to that streak extending to eight. The steady increase in demand for housing is keeping inventories of existing homes lean and is spurring on a pickup in homebuilding activity from recessionary lows. We anticipate that these improving trends in the housing market will continue in the near term, which would be consistent with the residential investment component of real GDP providing a key support for the ongoing expansion of the overall economy during the coming year.
David Onyett-Jeffries, Economist, RBC Economics
US consumer prices dip 0.4% in April as gasoline prices fall again
May 16, 2013
- US consumer prices dropped 0.4% in April, building on a 0.2% decline in March. Market expectations were for a slightly smaller 0.3% decline. The year-over-year rate of increase eased to 1.1% from 1.5% in March.
- The decline in the overall CPI largely reflected an outsized 4.3% drop in energy prices as gasoline prices fell sharply again in April. Food prices provided some offset, inching up 0.2% following an unchanged reading in March.
- Excluding the food and energy components, core CPI increased a modest 0.1%, slightly below market expectations for a 0.2% gain and matching the 0.1% increase in March. With the modest monthly gain, the year-over-year rate of increase in core prices dipped to 1.7% from 1.9% in March.
- The rate of growth in the overall CPI has been pushed lower by outsized weakness in gasoline prices in recent months; however, even excluding the energy component there is little evidence of price pressure in the system with the annual pace of core price growth slipping lower to a level further below the Federal Reserve’s 2% inflation target. The lack of underlying inflationary pressures continues to provide the Fed with flexibility to focus on the labour market half of its mandate. Our forecast assumes that this will result in the central bank continuing asset purchases through the end of this year and maintaining fed funds within the current range of 0% to 0.25% likely into 2015.
Consumer prices declined 0.4% in April. This marked a second consecutive monthly decline following a 0.2% dip in March and pushed the year-over-year rate of increase down to 1.1%, the lowest annual pace of price growth since November 2010, from 1.5% in March. The decline in the headline inflation rate largely resulted from an outsized 4.3% monthly decline in energy prices as gasoline prices plunged 8.1%, building on the already large 4.4% decline in March. This left gasoline prices 8.3% below their level last year at this time. Food prices provided some modest offset, rising 0.2%. Excluding both the energy and food components, core prices continued to rise, although by a modest 0.1% that matched the pace of increase in March. The modest monthly increase resulted in the year-over-year rate of growth in the core measure dipping to 1.7% from 1.9% in March.
The rate of growth in the overall CPI has been pushed lower in recent months by outsized weakness in gasoline prices. By freeing up household incomes for other purchases, this has likely provided some welcome support to consumer spending, offsetting in part the increase in payroll taxes that took effect in January. Gasoline prices appear to have stabilized to this point in May and may move somewhat higher in coming months; however, even excluding the energy component, there is little evidence of price pressure in the system with the annual pace of core price growth in April slipping to a level that is further modestly below the Federal Reserve’s stated 2% inflation target. The lack of underlying inflationary pressures continues to provide the Fed with flexibility to focus on the labour market half of its mandate. Our forecast assumes that this will result in the central bank continuing asset purchases through the end of this year and maintaining fed funds within the current range of 0% to 0.25% likely into 2015.
Nathan Janzen, Economist, RBC Economics
US housing starts fall sharply from five-year high in April; initial claims rise by more than expected in the latest week
- Housing starts fell 16.5% to 853,000 annualized units in April, significantly weaker than the 970,000 starts expected by markets going into the report.
- In sharp contrast, building permits jumped 14.3% in April to an annualized 1.017 million, much stronger than market expectations for a reading of 941,000.
- In a separate release, initial claims for unemployment insurance in the US rose by 32,000 to 360,000 in the week ending May 11, missing market expectations for a 330,000 reading. The increase in filings in the latest week built on the rise to a revised 328,000 (was 323,000) in the previous week and brings claims to their highest level since the end of March.
- While the larger-than-expected decline in new home construction in April is disappointing and provides a soft starting point for homebuilding activity in the second quarter (starts are an annualized 38.4% below the Q1/13 average), the significant pickup in building permits, combined with other indications of improving housing market conditions, such as yesterday’s reported improvement in homebuilders’ confidence in May, suggest that the pullback in activity is likely just a brief pause in the firmly established upward trend rather than a trend reversal.
Privately owned housing starts in the US fell 16.5% in April to a five-month low of 853,000 annualized units, missing market expectations for a reading of 970,000. The sharp monthly decline in homebuilding comes after activity hit a five-year high of 1.021 million annualized units (initially reported as 1.036 million) in the previous month.
The moderation in the pace of new home construction in April reflected weakness in both components. Multiple-unit starts plunged 38.9% to an eight-month low of 243,000 while single-unit construction recorded a more modest 2.1% decline to a five-month low of 610,000 annualized units.The significant pullback in the multiples component comes after hitting the highest level of starts since December 2006 in the previous month. On a regional basis, weakness was seen in the South (-27.9%), Northeast (-12.8%) and West (-6.2%) while a solid increase in the Midwest (+10.9%) provided some offset.
On a more encouraging note, the number of building permits issued surged in April, jumping 14.3% to 1.017 million annualized units, the highest level since June 2008. The strength in April reflected a 37.5% bounce in permits for multiple-unit residences (to 400,000 annualized units) while permits for single-unit homes rose by a more modest 3.0% (to 617,000).
While the larger-than-expected decline in new home construction in April is disappointing and provides a soft starting point for homebuilding activity in the second quarter (starts are an annualized 38.4% below the Q1/13 average), the significant pickup in building permits in the month, combined with other indications of improving housing market conditions, such as yesterday’s reported improvement in homebuilders’ confidence in May, suggest that the pullback in activity is likely just a brief pause in the firmly established upward trend rather than a trend reversal. We continue to anticipate that new home construction will increase throughout the remainder of this year and into 2014 as the residential real estate market continues to normalize and we expect starts to hit 1.3 million annualized units by the end of next year.
David Onyett-Jeffries, Economist, RBC Economics
U.S. industrial production fell in April
May 15, 2013
- Industrial production fell 0.5% in April 2013 following downwardly revised gains of 0.3% (was 0.4%) and 0.9% (was 1.1%) in March and February, respectively. Market expectations were for a modest 0.2% decline.
- The capacity utilization rate fell to 77.8% from 78.3% in March.
- The greater than expected pullback in industrial production in April followed solid gains in the previous two months and brought the level of overall activity at the start of the second quarter of 2013 in line with the first-quarter 2013 average. Part of the weakness in April likely reflected business concerns about the effect of the government spending cuts that came into effect on March 1. Our expectation is that overall real GDP growth will see a moderation in the second quarter of 2013 relative to the first-quarter 2013 annualized gain of 2.5%. We anticipate that the economy will reaccelerate in the second half of 2013 as stronger underlying demand outweighs the drag from fiscal consolidation; however, the pace of growth is unlikely to be significant enough to bring the unemployment rate below the Fed’s 6.5% threshold, and we continue to expect that monetary conditions will be kept highly accommodative into 2015.
US industrial production fell 0.5% in April 2013 and missed market expectations for a modest 0.2% decline. The bulk of downward surprise in April came from the manufacturing sector where production contracted by 0.4% in the month against expectations for a modest increase. Motor vehicle and parts production led the declines and was down 1.3% despite early indications of that auto production increased for a third consecutive month in April. Utilities production fell 3.7% in the month partially to reverse the previous month’s outsized 6.4% increase as heating demand fell back to a more typical seasonal level as temperatures returned to normal after a cooler than usual March. The Mining sector provided a modest offset to the weakness seen in the other components, with output rebounding 0.9% in April following the 0.6% decline recorded in the previous month.
With the decline in overall production, the capacity utilization rate fell to 77.8% in April from 78.3% in March.
The greater than expected pullback in industrial production in April followed solid gains in the previous two months and brought the level of overall activity at the start of the second quarter of 2013 in line with the first-quarter 2013 average. Part of the weakness in April likely reflected business concerns about the effect of the government spending cuts that came into effect on March 1. Our expectation is that overall real GDP growth will see a moderation in the second quarter of 2013 relative to the first-quarter 2013 annualized gain of 2.5%. We anticipate that the economy will reaccelerate in the second half of 2013 as stronger underlying demand outweighs the drag from fiscal consolidation; however, the pace of growth is unlikely to be significant enough to bring the unemployment rate below the Fed’s 6.5% threshold, and we continue to expect that monetary conditions will be kept highly accommodative into 2015.
David Onyett-Jeffries, Economist, RBC Economics
U.S. producer prices fell in April, but core prices edged upward
- The US producer price index fell 0.7% in April 2013, which was slightly weaker than market expectations for a 0.6% decline in the month. With the large monthly decrease, the year-over-year rate declined to 0.6% from 1.1% in March.
- Excluding both the volatile food (-0.8% month over month in April) and energy (-2.5% month over month) components, the core producer price index eked out a 0.1% gain in April to meet market expectations. The year-over-year rate of increase in core prices held steady at the 1.7% growth rate that was seen in both March and February.
- While the highly subdued headline Producer Price Index (PPI) inflation reading reflected the recent weakness in the volatile energy component, the modest annual rate of increase in core prices at the producer level was consistent with the view that inflation in the US remains muted despite evidence of improving private domestic demand as the excess capacity in labour markets continues to keep a lid on underlying price pressures. The benign inflation backdrop provides the Federal Reserve with the scope to maintain its highly stimulative monetary stance to support a faster pace of economic growth so as to put sustained downward pressure on the unemployment rate.
Producer prices in the US fell 0.7% in April 2013 to follow the 0.6% month-over-month decline seen in March. The decrease in April largely reflected lower energy prices, which dropped 2.5%, and was driven by an outsized 6.0% plunge in gas prices. The sharp declines in producer prices in the latest two months come in contrast to muted changes at this time last year and resulted in a sharp moderation in annual inflation at the producer level, with PPI up an extremely modest 0.6% on a year-over-year basis in April following a 1.1% increase in March, which was already down sharply from 1.7% in February.
Excluding the volatile energy and food (which fell 0.8% in the month) components, core prices eked out a 0.1% increase in April following gains of 0.2% recorded in each of the previous four months. The rise in April was led by increases in the prices for pharmaceutical preparations. On a year-over-year basis, the increase in core prices held steady at the 1.7% growth rate seen in both March and February.
While the highly subdued headline PPI inflation reading reflected the recent weakness in the volatile energy component, the modest annual rate of increase in core prices at the producer level was consistent with the view that inflation in the US remains muted despite evidence of improving private domestic demand as the excess capacity in labour markets continues to keep a lid on underlying price pressures. The benign inflation backdrop provides the Federal Reserve with the scope to maintain its highly stimulative monetary stance to support a faster pace of economic growth so as to put sustained downward pressure on the unemployment rate.
David Onyett-Jeffries, Economist, RBC Economics
U.S. retail sales unexpectedly inched higher in April
May 13, 2013
- Retail spending inched up 0.1% in April 2013, which was stronger than market expectations for a 0.3% decline, following a revised 0.5% (was 0.4%) drop in March.
- Overall sales were constrained by a price-led 4.7% drop in nominal sales at gasoline stations. Auto sales unexpectedly rose 1.0%.
- The so called “control” retail sales, which exclude sales of gasoline, motor vehicles, and building materials and enter directly into the Bureau of Economic Analysis’ (BEA) consumer spending estimate, rose 0.5% and was above market expectations for a 0.3% gain, following upwardly revised 0.1% (was -0.2%) and 0.5% (was 0.3%) increases in March and February, respectively.
- The modest gain in retail sales in April occurred despite a sharp drop in gasoline station sales that had more to do with lower prices than fundamental weakness in consumer demand. The rebound in core sales, along with upward revisions to prior months, actually points to some modest upside risk to our forecast that consumer spending rose at a 2.0% rate in the second quarter of 2013 although the increase is still likely to be below the 3.2% surge in the first quarter. Even with some moderation in spending, it remains the case that consumers have to this point weathered higher payroll taxes implemented in January and uncertainty about the effect of government sequestration cuts implemented in March surprisingly well.
Retail sales inched up 0.1% in April 2013, which was stronger than market expectations for a 0.3% decline, following a downwardly revised 0.5% decline (was -0.4%) in March and an upwardly revised 1.1% (was 1.0%) increase in February. The overall increase in the month was constrained by an outsized 4.7% plunge in sales at gasoline stations resulting from a sharp drop in gasoline prices. Auto sales unexpectedly rose 1.0%, which was at odds with an earlier reported 2.2% drop in unit vehicle sales in the month. Building material sales jumped 1.5% to more than retrace a 1.0% drop in March. The pick up in sales at building material sales in part likely reflects a return to seasonal weather in April after a cooler than normal March delayed spring yard work, although improving housing markets likely played a role.
The so called “control” sales (excluding the motor vehicle, gasoline, and building materials components), which is the component of the report that enters directly into the BEA’s monthly and quarterly consumer spending estimates, jumped 0.5%, which was stronger than the 0.3% gain expected, following upwardly revised 0.1% (was -0.2%) and 0.5% (was 0.3%) increases in March and February, respectively. This left the level of control sales in April already an annualized 2.5% above its first-quarter 2013 average.
The modest gain in retail sales in April occurred despite a sharp drop in gasoline station sales that had more to do with lower prices than fundamental weakness in consumer demand. The rebound in core sales, along with upward revisions to prior months, points to some modest upside risk to our forecast that consumer spending rose at a 2.0% rate in the second quarter of 2013 although the increase is still likely to be below the 3.2% surge in the first quarter that marked the largest quarterly increase in more than two years. Even with some moderation in spending, it remains the case that consumers have to this point weathered higher payroll taxes implemented in January and uncertainty about the effect of government sequestration cuts implemented in March surprisingly well. Our forecast assumes that fiscal contraction will contribute to a near-term slowing in overall GDP growth to slightly below a 2% rate in the second quarter of 2013; however, signs that fiscal cuts have not yet been enough to derail private demand is in line with our expectation that stronger growth in the second half of the year will follow once the near-term fiscal drag has run its course.
Nathan Janzen, Economist, RBC Economics
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