Category Archives: Finance & Economics

Real gross domestic product (GDP) increased at an annual rate of 1.3% in the first quarter of 2023, according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6%. The GDP estimate released is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 1.1%. …The increase in real GDP reflected increases in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

An expected impact of the virus crisis is a need for more residential space, as people use homes for more purposes including work. Home size correspondingly increased in 2021 as interest rates reached historic lows. However, as interest rates increased in 2022, and housing affordability worsened, the demand for home size has trended lower. According to first quarter 2023 data from the Census  and NAHB analysis, median single-family square floor area registered at 2,261 square feet. Average (mean) square footage for new single-family homes stood at 2,469 square feet. Since Great Recession lows (and on a one-year moving average basis), the average size of a new single-family home is now 4% higher at 2,486 square feet, while the median size is 7% higher at 2,262 square feet.

Lowe’s cut its full-year outlook Tuesday, as lumber prices fell and do-it-yourself customers bought fewer items. The home improvement retailer’s lowered its forecast even as it beat Wall Street’s revenue and earnings expectations for the fiscal first quarter. CEO Marvin Ellison said lumber deflation, unfavorable weather and lower spending by DIY customers hurt quarterly sales. He said the company expects “a pullback in discretionary consumer spending over the near term.” …Here’s what the company reported for the three-month period ended May 5: Revenue: $22.35 billion vs. $21.6 billion expected; Net income for the three-month period was $2.26 billion, compared with $2.33 billion. …Lowe’s competitor, Home Depot, posted a rare revenue miss with its quarterly report last week. …Like Lowe’s, Home Depot also chalked up lower sales to colder and wetter weather in the western U.S. and falling lumber prices.

The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.6% in April 2023 to 107.5 (2016=100), following a decline of 1.2% in March. The LEI is down 4.4% over the six-month period between October 2022 and April 2023—a steeper rate of decline than its 3.8% contraction over the previous six months (April–October 2022). “The LEI for the US declined for the thirteenth consecutive month in April, signaling a worsening economic outlook,” said Justyna Zabinska-La Monica, at The Conference Board. “Weaknesses among underlying components were widespread—but less so than in March’s reading, which resulted in a smaller decline. Only stock prices and manufacturers’ new orders for both capital and consumer goods improved in April. Importantly, the LEI continues to warn of an economic downturn this year. The Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023.”

NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates custom home building gained market share during recent quarters but experienced a notable drop for construction starts at the beginning of 2023. There were 36,000 total custom building starts during the first quarter of the year. This marks a 22% decline compared to the first quarter of 2022, matching weakness experienced throughout the home building sector. Over the last four quarters, custom housing starts totaled a solid 204,000 homes, a flat reading compared to the prior four quarter total (205,000).

Our economic forecast is little changed from last month. …Both the April employment and Consumer Price Index (CPI) reports came in close to our expectations, and the Federal Reserve delivered an anticipated 25 basis point rate hike at its last meeting. Therefore, our outlook remains largely unchanged, including our expectation of a modest recession beginning in the second half of this year. …We now project real GDP growth on a Q4/Q4 basis in 2023 to be negative 0.3 percent, up one-tenth from our prior outlook. For 2024, we have downgraded growth by two-tenths to 1.2 percent. We forecast the unemployment rate to move upward to 4.2 percent by year-end and to rise to 5.3 percent by the end of 2024. Along with a slowing economy, we also forecast inflation to continue to decelerate, with headline and core CPI ending 2023 around 3.0 and 4.0 percent on a Q4/Q4 basis, respectively.

US housing starts increased in April, adding to evidence that residential real estate is gradually recovering after a yearlong slump. Beginning home construction rose 2.2% to a 1.4 million annualized rate, according to government data released Wednesday. Single-family homebuilding increased 1.6% to the highest level this year, entirely due to a jump in the West. Starts of apartment buildings and other multifamily projects also rose. Applications to build, a proxy for future construction, fell 1.5% to an annualized rate of 1.42 million units. Permits for one-family dwellings, however, increased to a seven-month. …Builders are taking advantage of an historically low supply of existing homes for sale and some are offering financing incentives to ease affordability constraints amid budding demand for new houses. That helps explain why homebuilder sentiment currently stands at a 10-month high.

Prices have cooled in the once red-hot housing market, but competition is heating up between two generations in seemingly perpetual conflict. Millennials entering their prime homebuying years and baby boomers — many of whom are nearing retirement age — are vying for the same homes. Not all baby boomers are looking for smaller properties to spend their retirement years, and some millennials are encroaching on space in the suburbs, where their older peers would typically downsize. But most boomers have a key advantage: substantial equity from previous home purchases and higher incomes, which help them avoid the growing costs of a long-term mortgage. “Boomers are not downsizing and Millennials — first-time buyers in particular — are buying later in life. This puts both generations of buyers in head-to-head competition for similarly sized properties,” Jessica Lautz, at the National Association of Realtors.

Limited existing inventory, which has put a renewed emphasis on new construction, resulted in a solid gain for builder confidence in May even as the industry continues to face several challenges, including building material supply chain disruptions and tightening credit conditions for construction loans. Builder confidence in the market for newly built single-family homes in May rose five points to 50, according to the NAHB/Wells Fargo Housing Market Index (HMI). This marks the fifth straight month that builder confidence has increased and is the first time that sentiment levels have reached the midpoint mark of 50 since July 2022. New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level. 

In related NAHB news: Single-Family Starts Show Gradual Improvement in April

WASHINGTON – U.S. single-family homebuilding increased in April, but data for the prior month was revised sharply lower, suggesting that the housing market slump was far from over even as some segments show signs of stabilizing. The rise in single-family housing starts last month reported by the Commerce Department on Wednesday was concentrated in the West, with the rest of the three regions reporting big declines. Shortages of some materials were likely hampering builders, with the homebuilding backlog surging and completions declining. Single-family housing starts, which account for the bulk of homebuilding, rose 1.6% to a seasonally adjusted annual rate of 846,000 units last month. Data for March was revised down to show single-family homebuilding falling to a rate of 833,000 units instead of increasing to a pace of 861,000 units as previously reported. …But single-family building permits rose 3.1% to a rate of 855,000 units in April, the highest level since last September.

Asia has increased its share of global wood pellet imports to a record 32%. Worldwide trade of wood pellets was practically unchanged year-over-year compared to 2022. This was the first-time shipments failed to rise since 2017 when wood pellets became a globally traded commodity. …Asia, represented by Japan and South Korea, has continued to grow import volumes at the expense of European buyers. In 4Q 2022, this accounted for one-third of the world’s import volume—up from only 18% five years ago. Demand for biomass, including wood pellets, has increased remarkably quickly in Japan. …Japan will be the fastest-growing market in the world in the next 5-10 years. …The US’s woodchip exports have increased by about 40% in the past two years to reach an all-time high in 2022. The overseas shipments represented 73% of total shipments, up from 45% in 2020 and driven by higher demand for softwood fiber by Asian pulpmills.

While statistics spark fear in some, others see opportunity. “There are definite signs of new construction slowing, but we anticipate this will not have any significant negative impact on the remodeling segment,” says Phil Wengerd for ProVia. “Despite the rise in interest rates a few months back, consumers are still spending money on their homes.” “The current shortage of new housing inventory, however, will eventually necessitate new construction starting back up again,” he points out. “The surge of remodeling projects that occurred while folks were working remotely… has subsided, but home improvement investments are still strong.” …While nothing is a given, when taken as a whole, insights from door and window manufacturers seem to suggest a positive—if somewhat cautious—optimism. Improvements in the supply chain, coupled with a potential uptick in new housing starts as the year progresses, all spell potential wins for LBM dealers. 

According to the latest Producer Price Index report, the prices of inputs to residential construction less energy (i.e., building materials) decreased 0.2% in April 2023. The index has gained 0.5%, year-to-date, which is the smallest April YTD increase since it climbed 0.3% over the first four months of 2020. …The PPI for gypsum building materials fell 1.1% in April after increasing in February and March. …The PPI for softwood lumber (seasonally adjusted) increased 6.2% in April–the first increase since July 2022 and just the second since March 2022. Prices have increased 0.9% YTD but are 40.1% lower than they were one year ago. …Ready-mix concrete prices increased 0.4% in April after climbing 0.9% in March. …Steel mill products prices increased 3.1% in April after climbing 3.1% in February and March combined. …The price of truck and deep sea (i.e., ocean) transportation of freight decreased 1.7% and 0.4%, respectively, in April while the PPI for rail freight increased 0.4%. 

While labor availability has improved in the past year, shortages in skilled labor continue to impact both project costs and timelines, according to the Q2 2023 U.S. Houzz Renovation Barometer. Approximately 79% of businesses surveyed by Houzz reported “moderate to severe” labor shortages in the second quarter of 2023, an improvement from 91% of respondents during hte same period last year. Houzz says the decrease in businesses reporting labor shortages may reflect an overall decline in business activity levels. New committed projects reported at the start of the year have decreased by five index points relative to the third quarter of 2022, according to Houzz. 42% of industry professionals reported moderate to severe shortages of carpenters, an improvement from 56% in 2022. Over a quarter of respondents reported shortages of electricians, plumbers, cabinetmakers, and framers, though all represented an improvement from labor conditions in the second quarter of 2022.

Consumer prices in April saw the smallest year-over-year gain since April 2021. This marked the tenth consecutive month of deceleration and the first time the rate has fallen below 5% in two years. While the shelter index (housing inflation) experienced its smallest monthly gain since January 2022, it continued to be the largest contributor to the total increase, accounting for over 60% of the increase in all items less food and energy. The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. 

The NAHB’s Remodeling Market Index survey has asked questions about Aging-in-Place (AIP) periodically, beginning in 2004. According to results from the Q1 2023 survey, 63 percent of professional remodelers undertake projects designed to allow homeowners to Age-in-Place, down from 77 percent in Q4 2018. …Ninety-eight percent of remodelers cited that most or some of their consumers are familiar with the Aging-in-Place concept. …Grab bars are the most common AIP project, with 93 percent of remodelers reporting this job in the last year. They are followed by curb-less shower at 83 percent, installing higher toilets at 77 percent, widening doorways at 63 percent, and adding lighting/task lighting at 49 percent. Seventy-six percent of remodelers indicated that requests for Aging-in-Place features have significantly or somewhat increased over the past 5 years.

The “Construction Supply 150 (CS150) study by Webb Analytics attributes last year’s comparatively low growth rates at Home Depot, Lowe’s and other DIY groups in the USA to lower lumber prices. “Prices paid at the mill for major lumber species dropped 62 to 73 per cent between January and December last year,” noted Craig Webb, president of Webb Analytics and the author of CS150. “Much of the CS150 was affected – even giants like Home Depot, which posted only a 4.3 per cent rise, in part because lumber sales rose 0.8 per cent in 2022 compared with 18 per cent a year before.” The 4.3 per cent growth rate in 2022 refers to Home Depot’s operations in the US, excluding Canada and Mexico. Lowe’s’ growth in the US is 1.8 per cent, according to the report. [END]

The U.S. exported 909,787 metric tons of wood pellets in March, up from both 632,044 metric tons exported in the previous month and 801,396 metric tons exported in March 2022, according to data released by the USDA Foreign Agricultural Service on May 4. …The U.K. was the top destination for U.S. wood pellet exports at 366,798 metric tons, followed by the Netherlands at 256,478 metric tons and Japan at 102,742 metric tons. The value of U.S. wood pellet exports reached $169.43 million in March, up from $117.99 million in February and $127.33 million in March of last year. Total U.S. wood pellet exports for the first quarter of 2023 reached 2.18 million metric tons a value of $402.08 million, compared to 2.09 million metric tons exported during the same period of last year at value of $312.69 million.