Job Growth Remains Positive | John Burns Real Estate Consulting

Job Growth Remains Positive


Most service sectors of the economy continue to grow while the construction and manufacturing sectors continue to shed jobs. Overall job growth remains positive, despite 700,000 Construction and Manufacturing jobs lost in the last 12 months. Education and Health services employment remains very strong, with 557,000 jobs added over the last year.

Economic Growth………………………………………………………………….C-
The economic growth indicators continue to perform at below-average levels. Advance estimates of first-quarter GDP growth showed no improvement from the previous quarter with a very slow 0.6% annual rate. Employment performed better than expected in April, though year-over-year payroll employment growth fell to 381,000, or just 0.3% growth. The unemployment rate fell slightly to 5.0%, and the volume of mass layoffs was 23% higher than one year prior. While worker productivity rose unexpectedly to 2.2% year-over-year, personal income growth continues to decline, falling to 4.0%, and retail sales growth has slowed to just 2% year-over-year. Core CPI – a key gauge of inflation – rose slightly in March to 2.4%.

Leading Indicators………………………………………………………………….D
The poor performance of the leading indicators suggests sustained economic difficulties in the near future. While a slight improvement was witnessed in the Leading Economic Index in March, the Purchasing Managers Index and Non-Manufacturing Index remained flat and declined, respectively, following significantly deteriorated conditions in prior months. The price of oil continues to rise against the sinking dollar, with crude oil at $112.57 per barrel for the month, tightening the chokehold on consumer discretionary spending. All of the major stock indices that we track have shown negative growth in the last year, including the S&P Super Homebuilding index, which fell 42% year-over-year. Residential investment continues to decrease as a percentage of overall GDP, falling to 3.8%, which is its lowest share in more than 16 years.

Mortgage Rates……………………………………………………………………..B
In April, the Fed Funds rate dropped to 2.0% after the Federal Reserve cut the rate by another 25 basis points at month-end. The 30-year fixed rate rose to 6.03% by month-end, while the one-year adjustable rate rose to 5.29%. The Mortgage Bankers Association reported that the percentage of ARM applications was at a very low 5.9% of all loans originated during the last week of April. The performance of subprime loans issued in the first half of 2006 continues to weaken, as measured by the ABX 06-2 BBB- series index, which has declined 91% since April 2007.

Consumer Behavior………………………………………………………………D+
Consumer behavior remained weak this month, as consumer confidence continues to fall at a rapid pace, dropping well below its long-term average. The University of Michigan’s Consumer Sentiment Index continues its downward trend. The Consumer Comfort Index declined this month, after improving slightly in March. While the dollar value of equity per owned home remains quite high – even on an inflation-adjusted basis – equity as a percentage of home values is at its historical low.

Existing Home Market……………………………………………………………D
Weakness continues in the existing home market, with few signs of improvement. The annualized existing home sales volume continued to decline, remaining 19% below its year-ago level. The decline in the pending home sales index to its worst level since the index began in 2001 suggests that sales are likely to fall further. The slowdown in resale activity and slight uptick in inventory to 4.06 million homes pushed supply up to nearly 10 months of inventory. Prices in the resale market have fallen more than 8% year-over-year to a median of $198,200, according to the National Association of Realtors.

New Home Market…………………………………………………………………F
The new home market remained extremely weak, as sales activity continues to decline while inventory levels remain high. The NAHB’s Housing Market Index, which measures sales and traffic, stayed flat for the third consecutive month, measuring near its historical low at 20. New home sales activity fell to 526,000 annualized transactions, and remains 37% below the sales volume one year ago and 62% below its peak volume in July 2005. The level of unsold new homes rose to a record high of 11 months of supply – this includes approximately 4.3 months of unsold completed new homes alone. The Census Bureau reported that the median new home sales price of $227,600 represented a 13.3% decline over last year.

Housing Supply…………………………………………………………………….F
The supply of housing continues to decline, as builders continue to cut back on construction. The annual volume of new home completions fell to 1.22 million, which is the lowest total since December 1995. Housing starts fell in March to 947,000 total annualized units, indicating that completions are likely to continue to decline in the near future. Single-family permit volume has fallen 46% in the last year, dropping to 606,000, which is the lowest volume since early 1991. The number of multifamily permits also fell, and the total seasonally adjusted permit activity has fallen below 1 million for the first time since November 1991.

U.S. HOUSING MARKET STATISTICS
Data Current Through April 30, 2008
Grade*
Overall Grade
D+
Statistic
Grade*
C-
These are the best indicators of how the economy is currently performing.
Real GDP (annual rate)
0.6%
C-
Employment Growth (1-year Change)
– Non-ag Payroll, NSA
381,000
C-
Employment Growth Rate
– Non-ag Payroll, NSA
0.3%
C-
Unemployment Rate
5.0%
C+
Mass Layoff Events, SA (YOY % Change)
23.0%
C-
Productivity
2.2%
C
Retail Sales
2.0%
D
Inflation (core CPI)
2.4%
B
Personal Income Growth, nominal
4.0%
D
Federal Deficit (last 12 mos., $mil curr.)
-$240,051
C
Total Households
110,824,000
Statistic
Grade*
D
These have all proven to be predictable early indicators of the direction of economic growth.
Leading Econ. Index (Ann. Growth Rate Last 6 Mos.)
-3.3%
D+
ECRI Leading Index
-8.9%
D
Manpower Net Employment Outlook
14%
D+
Corporate Profit Growth (pre-tax)
2.5%
C-
Residential Investment as % of GDP (nominal)
3.8%
D-
Interest Rate Spread
10-year Treasury
3.81%
2-year Treasury
2.30%
Interest Rate Spread
1.51%
B-
Stock Market (Return over last 12 months)
Dow Jones
-2%
C
S&P 500
-7%
D+
NASDAQ
-4%
C-
Wilshire 5000
-6%
D
S&P Super Homebuilding
-42%
F
Crude Oil Price (Current $)
$112.57
F
ISM Manufacturing Index
48.6
C-
ISM Non-Manufacturing Business Activity Index
50.9
D+
Statistic
Grade*
B
These statistics are probably the most important indicators of short-term housing market performance.
Conforming Mortgage Rates (contract rate; an additional 0.6 – 1.0 points are also paid up front by the borrower)
Mortgage Rates, fixed
6.03%
A-
Mortgage Rates, adjustable
5.29%
B-
Fixed/Adjustable Spread
0.74%
F
Fixed/10-year Spread
2.22%
C+
Fed Funds Rate
2.00%
Percentage of Adjust. Loans
5.9%
A-
Subprime Index (ABX.HE.BBB-.06-02)
6.5
F
Statistic
Grade*
D+
Consumer attitudes correlate well with short-term housing sales performance. Consumer income growth, debt levels and job prospects affect the long-term outlook for housing sales.
Consumer Confidence Index
62.3
D-
Consumer Sentiment Index
62.6
D-
Consumer Comfort Index
-38.5
F
Equity/Owned Home (Current $)
$128,332
A-
Equity % of Home Value
47.9%
F
Median Household Income
$48,201
– Growth Rate, nominal
4.0%
C-
Revolving Cons. Credit per Household
$8,096
– Growth Rate
6.7%
B-
Statistic
Grade*
D
Sales volumes correlate well with the Housing Cycle calculations, and boost the trade up New Home sales market.
S&P/Case-Shiller® U.S. Price Index (YOY % Change)
-8.9%
F
NAR Single-Family Median Home Price
$198,200
NAR Single-Family Annual Price Appreciation
-8.3%
F
Freddie Mac Annual Price Appreciation
0.3%
F
Annual Sales Volume, SA
4,930,000
B-
Months Supply of Unsold Homes, SA
9.9
D
Purchase Mort. App. Index, SA
340.1
B-
Pending Home Sales Index, SA
83.0
F
Homeownership Rate
67.8%
B+
Statistic
Grade*
F
High appreciation and low inventory would mean an excellent short-term outlook for the new home industry.
Housing Market Index
20
F
Multifamily Condo Market Index
18.8
F
Median Price, NSA
$227,600
Annual Appreciation Rate
-13.3%
F
Constant Quality Price Index (YOY % Change)
-7.6%
F
Sales Volume, SA
526,000
D
Months Supply of Unsold Homes, SA
11.0
F
Months of Homes Completed, SA
4.3
F
Months of Homes Under Const., SA
4.6
D
Months of Homes Not Started, SA
1.6
F
Statistic
Grade*
F
High construction levels are good for the economy. However, if new supply exceeds demand, prices could fall.
New Housing Units Completed, SA
1,216,000
D
Single-Family Starts, SA
680,000
F
Multifamily Starts, SA
267,000
D
Total Starts SA
947,000
F
Single-Family Permits, SA
606,000
D-
Multifamily Permits, SA
321,000
D
Total Permits, SA
927,000
F
Manuf. Housing Placements, SA
88,000
F
Total Supply, SA
1,015,000
F
Total Housing Stock
129,386,000
Homeowner Vacancy Rate
2.9%
F

 


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