U.S. Housing Starts Up on Multifamily Construction U.S. home building rebounded in September after two straight months of declines, largely because of a sharp increase in construction of apartments and other multifamily housing.
Housing starts rose 6.5% from a month earlier to a seasonally adjusted annual rate of 1.21 million in September, the Commerce Department said Tuesday. An 18.3% surge in multifamily units, which include apartments and condominiums, led the increase. Starts of single-family homes, which make up nearly two-thirds of the market, barely budged, rising a mere 0.3%. (…)
Tuesday’s report showed new-home starts for August were revised to a 1.7% decline, compared with an initial estimate of a 3% decrease. (…)
And building permits fell 5% between August and September to a seasonally adjusted annual rate of 1.1 million, the report said. Year-to-date, housing starts are up 12% and building permits are up 13%. (…)
Weakness was notable in the multi-family sector where permits fell 12.1% (+1.1% y/y). Declines occurred throughout most of the country. Single-family permits also eased 0.3% (+6.6% y/y), reflecting shortfalls in the Northeast and West.
Slowly but surely, single starts are heading up. (Charts from Haver Analytics)
Low interest rates and home prices knocked down from the housing crisis have made buying a much better deal than renting in virtually all U.S. markets. But good deals notwithstanding, buying is an option only for those who earn enough to afford the homes available on the market.
A report from Trulia on Tuesday offers some hard solace for would-be homebuyers priced out of hotter housing markets. Across the U.S., the report said, it’s 23 percent cheaper for a young household to buy a home than to rent one. But in San Jose and Honolulu the advantage to buying is nonexistent. In New York and other expensive cities, the advantage to buying will likely disappear once mortgage rates finally rise.
Trulia compared the median costs of buying and renting and found that San Jose and Honolulu are the only two U.S. cities where renting is a better deal. (…)
However, the reality for most people is:
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Even the Cheapest Homes Are Too Expensive for Millennials Lowest-priced homes are now outpacing growth for the highest tier
(…) Prices for the least expensive previously owned homes — properties at 75 percent or less of the median — were up 10.7 percent in August from a year earlier and now represent the only one of four price tiers to surpass the peak reached during the housing bubble, according to a housing index from CoreLogic Inc. The August pace was 5.9 percent above its pre-recession high in October 2006.
The gap in the the growth rate between the most expensive and cheapest homes is now the widest since 1983, with the latter rising at a pace that’s 5.2 percentage points higher than that of the top tier.
“You’ve got the front end of a big wave of first-time homebuyers but the supply of affordable housing is not there to meet that wave,” said Sam Khater, CoreLogic’s deputy chief economist. “What you’re seeing in the housing market is a reflection of the polarization of income. The builders are looking at it from that perspective: ‘If I have a choice of going up- and down-market, I’ve got to go up-market.'”
The starter-home supply crunch is worsening, adding to the pressure on prices. The bottom third of the market accounted for 24.4 percent of listings in August, according to property website Zillow. That’s down from 25.6 percent a year earlier. In Denver, where the shortage is extreme, the lowest tier accounted for just 16 percent of inventory.
Philadelphia Fed Nonmanufacturing Survey Indicates Improvement
The Federal Reserve Bank of Philadelphia reported that its Index of Nonmanufacturing Sector Activity at the company level rose to 37.5, the highest level since June. Nevertheless, the reading remained below the year-ago level for the ninth month this year.
Improved readings for new and unfilled orders, inventories, full-time permanent employees and capital expenditures on physical plant were behind the rise in the overall October index average. Also rising was the number of part-time employees, the length of the average workweek and prices received. To the downside were sales or revenue as well as capital expenditures on equipment & software.
Japan’s Export Growth Slows as China Stumbles Exports to China fall 3.5%, while total export growth slows to a 13-month low in September
(…) Exports to China—Japan’s second-largest market—fell 3.5% in September from a year earlier, after a 4.6% decline in August, Japanese government data showed. Total export growth slowed to a 13-month low of 0.6%, well below a 3.4% increase expected by economists surveyed by The Wall Street Journal.
(…) export volumes to the U.S. fell 4.7% in September, a fifth straight monthly decline, due to weaker demand for auto parts, visual equipment and semiconductors. The volume of exports to Asia also dropped in September, by 4.2%, a third consecutive monthly decline. (…)
It is possible Japan’s economy shrank again in the third quarter at about the same rate as the 1.2% contraction seen in the second, Mr. Nagahama said. That would be the second technical recession in two years for Japan. (…)
China’s 3Q15 Nominal GDP Growth Rate Lower Than During 08-09 Global Financial Crisis
Good piece from CEBM Research:
Although the real growth rate dropped by just 0.1 percentage points, the nominal growth rate dropped by a much larger magnitude, with Y/Y growth slowing from 7.1% in Q2 to 6.2% in Q3. The third quarter’s nominal growth rate is even lower than during the 2008-2009 global financial crisis and is at about the same level as it was during the 98 Asian Financial Crisis.
Many enterprises are experiencing shrinking revenue and profits and are under greater stress than the real GDP figure would suggest, increasing the probability of credit defaults. Even for the property sector that started to see policy loosening back in September 2014, developers have not seen much improvement in terms of cash flows despite the noticeable pickup in sales.
One of the leading factors contributing to the current slowdown has been the government’s attempt to slow the rate of debt expansion since the beginning of 2011, i.e., Y/Y growth in the outstanding balance of total social financing (OBTSF) has dropped from 35% to a current 12%. This process was interrupted during the leadership transition in 2012-2013, but resumed by mid 2013. The current 12% Y/Y growth in OBTSF is in line with the government’s target of 12% M2 growth.
Bringing OBTSF growth in line with M2 growth likely marks the end of a 4-year phase to slow the rate of debt expansion. We feel it is unlikely that a substantial pickup in the debt level expansion rate will occur going forward. A further drop in this rate is also unlikely in the short-term. Latest data shows the 12-month difference in the Y/Y growth of OBTSF is still negative, but has narrowed substantially, a sign that policy loosening has started. A return to a positive differential is critical for the stabilization of aggregate demand.
Fiscal spending continued as a supporting factor for growth in September, helping to cushion the slowdown in the private sector. The 12-month rolling fiscal deficit topped 2 trillion RMB at the end of September, substantially higher than the 1.65 trillion budget deficit target. Without lifting the deficit target, additional room for fiscal policy will be limited, in which case fiscal spending will be a drag to aggregate demand in 4Q15. In addition, the transmission channel of fiscal spending via local government infrastructure investment no longer works due to the deterioration in local government finances. A new channel could be established in which policy banks would provide equity with PPP funding and seek leverage at commercial banks. Progress through this new channel likely will be much slower than via the old channel.
Note that with nominal GDP up 6.2% YoY and real GDP up 6.9%, China is deflating at a meaningful rate, something Beijing must not like seeing.
ECB sees signs of thaw in bank lending Growth in business loans boosts eurozone recovery hopes
A closely watched survey of the eurozone’s banks shows they are relaxing their loan standards for businesses, in a sign of growing confidence about economic prospects in the European currency area. (…)
Companies and households across the eurozone demanded more loans in the third quarter of 2015 compared with the previous three months.
“[QE] had a net easing impact on credit standards and particularly credit terms and conditions . . . The easing impact was greatest for loans to enterprises,” the ECB said.
But the quarterly lending survey also found that banks had toughened their requirements for loans to households. (…)
OIL
Global Demand Growth for Oil May Fall by a Third in 2016
(… 0A 40% decline in the price of oil since last year has boosted demand, encouraging motorists, consumers and companies to top up. But the economic slowdown in China and elsewhere in Asia could sap that demand, according to analysts and big energy watchdogs. (…)
The International Energy Agency, an energy watchdog, forecasts global oil demand growthfalling from 1.8 million barrels a day this year to 1.2 million next year. The Organization of the Petroleum Exporting Countries, the 12-nation oil cartel, expects demand growth to fall to 1.25 million barrels a day, and some analysts see demand dropping even lower. (…)
The U.S. Energy Information Administration pegs demand in 2016 at 1.41 million barrels a day, up from 1.31 million this year. (…)
There is a difference of 210,000 barrels a day between where the IEA and the EIA energy watchdogs see average oil demand growth next year, while Swiss bank UBS says it will finish even lower, at 1.1 million barrels a day—some 300,000 barrels a day lower than EIA’s estimate. (…)
IMF warns on Gulf states growth Big spending cuts needed to balance budgets, fund says
(…) In its latest regional economic outlook for the Middle East, north Africa and Central Asia, published on Wednesday, the IMF forecast that the six-member Gulf Co-operation Council will see gross domestic product growth slow from 3.25 per cent this year to 2.75 per cent next year.
Council members’ average fiscal deficits are expected to reach 13 per cent of GDP this year, with the region’s largest economy, Saudi Arabia, facing a deficit of 21.6 per cent in 2015 and 19.4 per cent in 2016.
All regional oil exporters, having lost $360bn over the past year in export revenues, will have to deal with a cumulative fiscal deficit of more than $1tn over the next five years. (…)
“Yes, they have financial buffers, but addressing these issues is a matter of time urgency,” Masood Ahmed, the IMF’s regional director, said at a press conference in Dubai. “Difficult choices have to be made in ways to cut back on spending or to raise other forms of revenue, such as taxes.” (…)
Most countries’ fiscal measures are unlikely to achieve balanced budgets in the medium term, the fund warned. All regional exporters — apart from Kuwait, Qatar and the United Arab Emirates — are on course to run out of financial reserves within five years, it noted, adding that GCC states need to rebuild surpluses to deal with future oil shocks. (…)
To balance their budgets, Middle Eastern countries would have to reduce spending by 12-13 per cent of GDP over the year, the IMF said. (…)
EARNINGS WATCH
- 86 companies (24.3% of the S&P 500’s market cap) have reported. Earnings are beating by 2.8% while revenues have missed by -0.6%.
- The beat rate is 64% on EPS (71% ex-Financials) and 34% on revenues.
- Expectations are for a decline in revenue, earnings, and EPS of -3.9%, -5.1%, and -4.0%. Ex-Energy, these would be +1.6%, +2.2%, and +3.4%. This excludes the likelihood of beats, which have been above 4% over the past three years. (RBC Capital)
