U.S. housing starts take a breather; single-family permits rise
Groundbreaking decreased 5.8 percent to a seasonally adjusted annual pace of 1.14 million units, the Commerce Department said on Tuesday.
Permits for future construction slipped 0.4 percent to a 1.14 million-unit rate last month as approvals for the volatile multi-family homes segment tumbled 7.2 percent to a 402,000 unit-rate. Permits for single-family homes, the largest segment of the market, surged 3.7 percent to a 737,000-unit pace. (…)
The drop left starts just below their second-quarter average. (…)
Groundbreaking on single-family homes dropped 6.0 percent to a 722,000-unit pace in August, the lowest level since last October. (…) Housing starts for the volatile multi-family segment
fell 5.4 percent to a 420,000-unit pace.
U.S. Home-Builder Gauge Matches Highest Level Since 2005 Confidence among U.S. home builders about the market for single-family homes rose this month to match its highest level in 11 years, suggesting rising demand for new residential construction that could boost the broader economy.
The National Association of Home Builders housing-market index increased six points from the prior month to a seasonally adjusted 65 in September, the trade group said Monday. The August reading was revised down to 59 from a previously reported 60. A number over 50 indicates more builders view conditions as good than poor. (…)
Monday’s report showed a measure of builders’ views about the present market jumped to 71 this month from 65 in August. An index of their outlook for the market over the next six months rose to 71 from 66. A third component, measuring traffic of prospective buyers, rose to 48 from 44.
Haver Analytics says that during the last ten years, there has been an 72% correlation between the y/y change in the home builders index and the y/y change in housing starts.
These Bespoke Investment charts suggest that it doesn’t get much better:
HOTEL DEMAND SLOWING
In CETERIS NON PARIBUS and HARD HAT ZONE, I argued that corporate demand for hotels would wane as corporate budgets need to adjust to lower profits. From the recent Hotel Data Conference in Nashville, Tennessee:
STR President and CEO Amanda Hite said the company has revised its 2016 full-year forecast to 3.2% growth in revenue per available room, down from 4.4%. STR also expects completely flat occupancy for the year with 3.2% average-daily-rate growth. Earlier in the year, the company had projected 0.4% occupancy growth with 4% ADR growth.
Hite said the relatively mild rate growth continues to confound.
“The deceleration of growth is not surprising, but it’s happening faster and earlier in the year than expected,” Hite said. “(The lack of rate growth) is always puzzling for us and has been for the past three years. The fundamentals say we should be able to achieve higher rate growth.”
But the puzzle is easy to understand in light of 6 consecutive quarters of declining corporate profits. These charts are from a Smith Travel Research presentation on September 15: (charts courtesy of STR via Hotel News Now:
- Total demand growth has slowed below the last slowdown level:
- Transient demand has flattened:
But corporate demand threatens to turn negative:
FedEx Details Plans to Raise Rates Next Year FedEx Corp. said its will raise shipping rates starting next year, including an average increase of 3.9% at its air-shipping Express division and 4.9% for its ground and home-delivery services.
The shipping giant’s plan comes after rival United Parcel Service Inc. recently unveiled an average rate increase of 4.9% to help pay for system upgrades and expansion.
KESSLER: CONTRARIAN TREASURIES
A Wealthtrack interview with a contrarian who has been correct on interest rates and the value of U.S. Treasury bonds for years, Kessler Investment Advisors’ Robert Kessler.
China’s Loan Demand Weakens to Historic Low
The willingness of Chinese companies to borrow reached a 12-year low in the third quarter, according to a survey published by the country’s central bank on Sunday.
Amid an economic slowdown, the overall index of loan demand was at 55.7 in the third quarter, the lowest since the People’s Bank of China started to compile the data in 2004. The index of loan demand from medium-sized enterprises fell to 52 and for small business to 55.8, both historic lows. However, the figure for large corporations slightly rebounded at 51.4, up 0.1 points from a quarter earlier. (…)
Banks have imposed tougher rules on approving loans to SMEs amid rising non-performing loans. Tighter restrictions, in turn, have cooled companies’ enthusiasm to seek new funds from banks, the manager said. Twenty percent to 30 percent of his business customers haven’t repaid their debt, he said.
Twelve out of China’s 16 publicly listed banks saw a rising level of non-performing loans in the first half of 2016 compared with the same period a year before.
The demand by manufacturers for loans declined in the third quarter, falling to 46.8 from the second quarter’s 48.
The PBOC’s index of loan demand from the non-manufacturing sector remained unchanged at 55.1.
More than half of the bankers from the 3,100 institutions surveyed by the central bank said the national economy in the third quarter was “cooling down,” while 44.6 percent of them thought the overall trend looked “normal.”
Of the 20,000 residents surveyed, 53.7 percent said the housing prices are “high and unacceptable,” 0.3 percentage points more than in the second quarter. Only 3.4 percent described prices as “satisfactory,” and the remaining 42.9 percent considered them “acceptable.”
Mr. Li does is more optimistic:
China’s economy has shown a steady upward trend and has huge room for maneuver while there’s no basis for a sustained depreciation of the nation’s currency, said Premier Li Keqiang.
Li, speaking as he met with President Barack Obama in New York, said the yuan will stay basically stable and at a reasonable and balanced level. Those comments echo the government’s recent commentary on the currency.
Maybe shadow banking is helping, for now:
The brokerage estimated the potential bad debt ratio for “bank-related shadow financing” at 16.4 percent, or 4.2 trillion yuan, in a report released to the media in Hong Kong on Tuesday. Assuming a 40 percent recovery rate left a potential loss of 2.5 trillion yuan. (…)
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Warning Indicator for China Banking Stress Climbs to Record
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Ambrose Evans-Pritchard: China facing full-blown banking crisis, world’s top financial watchdog warns
(…) China’s problem is internal credit. The risk is that a fresh spate of capital outflows will force the central bank to sell foreign exchange reserves to defend the yuan, automatically tightening monetary policy. In extremis, this could feed a vicious circle as credit woes set off further outflows.
The Chinese banking system is an arm of the Communist Party so any denouement will probably take the form of perpetual roll-overs, sapping the vitality of economy gradually.
The country was able to weather a banking crisis in the late 1990s but the circumstances were different. China was still in the boom phase of catch-up industrialisation and enjoying a demographic dividend.
Today it is no longer hyper-competitive and its work-force is shrinking, and time the scale is vastly greater.