Category Archives: Finance & Economics

Over the first eight months of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 615,453. On a year-over-year (YoY) basis, this is 15.6% below the August 2022 level of 728,866. Year-to-date ending in August, single-family permits declined in all four regions. The range of permit decline spanned 10.7% in the Northeast to 21.7% in the West. The South declined by 13.7% and the Midwest declined by 15.4% in single-family permits during this time. For multifamily permits, the percentage decline spanned 8.1% in the South region to 29.1% in the Northeast. The West declined by 12.9% and the Midwest declined by 18.3% in multifamily permits during this time.

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis, after increasing 0.6 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment. The index for shelter was the largest contributor to the monthly all items increase, accounting for over half of the increase. An increase in the gasoline index was also a major contributor to the all items monthly rise. While the major energy component indexes were mixed in September, the energy index rose 1.5 percent over the month. The food index increased 0.2 percent in September, as it did in the previous two months. The index for food at home increased 0.1 percent over the month while the index for food away from home rose 0.4 percent. 

The NAHB/Westlake Royal Remodeling Market Index (RMI) for the third quarter of 2023 posted a reading of 65, edging down 3 points from the previous quarter. While there is still demand for remodeling, some customers are pulling back on potential projects due to higher prices and increased interest rates. Even though remodeling spending has experienced some slow down over the past year, it accounts for 43% of total residential construction as of June 2023, up from 31% at the beginning of 2002. NAHB forecasts that the remodeling market will experience mild growth in 2024 & 2025. …In the third quarter of 2023, the Current Conditions component index was 72, falling 5 points from the previous quarter. …The Future Indicators Index is an average of two subcomponents: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects.

Renewables are expected to account for 25 percent of U.S. electricity generation next year, up from 22 percent in 2023, according to the U.S. Energy Information Administration’s latest Short-Term Energy Outlook, released Oct. 11. Renewables accounted for 22 percent of U.S. electricity generation in 2022. Biomass electricity generation is currently expected to reach 23.5 billion kilowatt hours (kWh) this year, increasing to 24.6 billion kWh in 2024. Biomass was used to generate 26.7 billion kWh of electricity last year. The U.S. electric power sector had approximately 2.9 gigawatts (GW) of waste biomass production capacity in place as of the end of 2022. Waste biomass capacity is expected to increase to 3 GW this year and be maintained at that level through 2023. The sector also had 2.4 GW of wood biomass capacity in place last year, with that level of capacity expected to be maintained through 2023 and 2024.

In a new study, NAHB uses the 2021 American Housing Survey (AHS) to investigate the characteristics of recent home buyers, defined as households who purchased homes in the two years preceding the date the 2021 AHS was conducted. …In the 2021 AHS, the median household income for all recent home buyers was $97,700. …The median value of the homes purchased was $318,185 overall in the 2021 AHS. The median value of new homes was $429,205, and the median value of homes purchased by a first-time buyer was $271,445. …More than half of recent buyers put no more than a 20% down payment on the homes they purchased. Around 18% of all buyers purchased a home without a down payment in 2021, 50% had a down payment of 0 to 20%, and only 16% put more than 20% down. 

At the 65th Annual Meeting of the National Association for Business Economics, Dallas, Texas. …Even though recent inflation data have been encouraging, inflation remains too high. Over the 12 months ending in August, total Personal Consumption Expenditures prices rose 3.5 percent, the black line in figure 1. …The first category, core goods inflation, the red line in figure 2, has slowed strikingly, as supply chain–related price pressures continue to ease. The second category, housing services price inflation, the black line, has clearly stepped down, as was anticipated given the previous slowing of increases in rents for new tenants. In contrast, price increases for the third category, core nonhousing services, the blue line, have yet to show a significant slowdown. Since this segment accounts for more than 50 percent of the overall core PCE index, we will need to see further slowing in this area to meet our inflation objective. 

Biomass continued to be the second largest source of renewable electricity in the U.K. last year, trailing only offshore and onshore wind, according to an annual report released by the U.K. Association for Renewable Energy and Clean Technology (REA) on Oct. 4. The annual state of the industry report, titled Review23, indicates that renewables accounted for 41.7 percent of U.K. power generation last year, up from 39.6 percent in 2021. Biomass provided 6.9 percent of the U.K.’s electricity needs last year, down from 8.78 percent in 2021. While remaining relatively small contributors, anaerobic digestion and waste-to-energy technologies have continued to grow consistently, according to the report. The biomass power sector, which includes facilities fueled by energy crops, straw and wood pellets, generated approximately 22,000 gigawatt hours (GWh) of electricity last year, down 16 percent from 2021.

NAHB Analysis of the Census Bureau’s Characteristics of Units in New Multifamily Buildings Completed finds that 93% of the 368,000 multifamily units completed in 2022 were built-for-rent while the remaining 7% were built-for-sale. …While the number of multifamily units being completed is at a level higher than pre-Great Recession completions, the type of building where units are located is vastly different than past construction. In 2022, 58% of completed multifamily units built-for-rent were in buildings that had 50 units or more. …The percentage of built-for-rent units completed that were in buildings with 50 or more units in 1999 was just a mere 13%. There is a clear trend that multifamily built-for-rent has been increasingly focused on high-density over the past 20-years while the medium to light density has been reduced greatly.

With mortgage rates above 7% – making housing affordability even more difficult for the average American — some builders have been making adjustments to compensate. This includes using less costly materials along with some residential construction companies turning to smaller builds. But the rules of the playing field didn’t change overnight. Home sizes and off-site construction see continuing declines: as home sizes have seen a gradual decline over the past decade, so has the number of residential builds created off-site. Citing data from the Census Bureau’s Survey of Construction, the NAHB said a total of 29,000 homes at 5,000-plus square feet were started in 2022, down from 33,000 in 2021. In comparison, new 5,000-plus square feet homes reached a peak of 45,000 in 2006 and then fell to 37,000 in 2007. …Saunders noted that some home builders have switched to building smaller homes while swapping out lesser-priced materials in order to bring down the overall cost of a new home.

When everyone expects a soft landing, brace for impact. That’s the lesson of recent economic history — and it’s an uncomfortable one for the US right now. A summer in which inflation trended lower, jobs remained plentiful and consumers kept spending has bolstered confidence — not least at the Federal Reserve — that the world’s biggest economy will avoid recession. A last-minute deal to avoid a government shutdown kicks one immediate risk a little further into the future. But a major auto strike, the resumption of student-loan repayments, and a shutdown that may yet come back after the stop-gap spending deal lapses, could easily shave a percentage point off GDP growth in the fourth quarter. Add those shocks to other powerful forces at work on the economy and the combined impact could be enough to tip the US into a downturn as early as this year. Here are six reasons why a recession remains Bloomberg Economics’ base case. 

Construction spending during August 2023 was estimated at a seasonally adjusted annual rate of $1,983.5 billion, 0.5 percent (±1.2 percent) above the revised July estimate of $1,973.7 billion. The August figure is 7.4 percent (±1.8 percent) above the August 2022 estimate of $1,847.3 billion. During the first eight months of this year, construction spending amounted to $1,284.7 billion, 4.2 percent (±1.2 percent) above the $1,233.4 billion for the same period in 2022. …Spending on private construction was at a seasonally adjusted annual rate of $1,551.8 billion, 0.5 percent (±0.7 percent) above the revised July estimate of $1,544.6 billion. Residential construction was at a seasonally adjusted annual rate of $879.9 billion in August, 0.6 percent (±1.3 percent) above the revised July estimate of $874.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $671.9 billion in August, 0.3 percent (±0.7 percent) above the revised July estimate of $669.9 billion.

The Institute for Supply Management’s (ISM) monthly sentiment survey of U.S. manufacturers reflected a slower contraction in the sector during August. …The PMI registered 47.6%, up 1.2PP from July’s reading. 50% is the breakpoint between contraction and expansion. All subindexes remained at or below 50. …In July, total industrial production (IP) increased 1.0% (-0.2% year-over-year/YoY) following declines in the previous two months. …In the forest products sector, the price indexes were measured as follows:

Pulp, Paper & Allied Products: -0.3% (-0.4% YoY).
Lumber & Wood Products: +0.3% (-8.9% YoY).
Softwood Lumber: +4.4% (-17.3% YoY).
Wood Fiber: -0.5% (-3.8% YoY).

The SLB recently published its Q2 2023 Report, detailing the SLB and its funded programs’ activities that outperformed on a wide number of measures while defending existing market share and making strategic investments that will help grow and diversify revenue streams.

Key highlights include:

• 454 MM BF of incremental demand generated and 1.3 MM metric tons of CO2 stored and avoided.
• The American Wood Council launched its Wood Sourcing Tool and is expanding lifecycle inventory database and fiber sourcing data.
• Think Wood increased its overall content output by nearly 70% in Q2.
• WoodWorks directly influenced 129 projects and indirectly influenced 329 projects in Q2. 
• New accounts on the Wood Institute grew steadily and surged on an annualized basis by over 70%. SLB Education completed three faculty development workshops benefitting 52 educators from 42 schools of architecture and engineering.

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2023 (table 1), according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.2 percent (revised). …The increase in real GDP reflected increases in nonresidential fixed investment, consumer spending, and state and local government spending that were partly offset by a decrease in exports. Compared to the first quarter, the deceleration in real GDP in the second quarter primarily reflected a deceleration in consumer spending, a downturn in exports, and a deceleration in federal government spending that were partly offset by an upturn in private inventory investment, an acceleration in nonresidential fixed investment, and a smaller decrease in residential investment. Imports turned down.

Weyerhaeuser reduced its third-quarter outlook for two of its business segments due to lower sales volumes. The Seattle-based company said in an investor presentation Wednesday it now expects its timberlands segment to see a $35 million decline in both earnings and adjusted Ebitda compared with the second quarter. The company had expected a decline of $25 million. For its wood products segment, the company now expects a more moderate rise in both earnings and adjusted Ebitda after previously guiding for a significant increase compared with the second quarter. The company said that its volumes for log sales and lumber were less than expected. The company also saw reduced lumber production at several mills due in part to wildfires in Canada. [END]

Richard Branch, chief economist at Dodge Construction Network… predicts that while rate hikes are unlikely to continue, “the Fed won’t start cutting rates for some time—possibly not until the midpoint of 2024. As a result, construction starts will be under pressure for the next several quarters, ending 2024 down and not gaining strength until the back half of next year.” In the residential sector, starts are “languishing”, says Branch. With mortgage rates at nearly 7%, demand for single family homes remains low after reaching its lowest point earlier in the year, and Branch expects the remainder of the year to follow suit. Multifamily starts have fallen since peaking at the end of last year. However, says Branch, “Multifamily projects continue to enter the early stages of planning at a modestly positive rate. This suggests that as monetary policy eases in mid-2024, multifamily starts will see renewed growth.”

While pulp and paper price increases started to pop up in some parts of the world, North American printing and writing paper prices remained under downward pressure due to slower-than-expected demand in the third quarter, which is usually the strongest period of sales for the industry. Mills continued to operate at very low capacity, and the supply chain is still holding more-than-desired inventories. …Year-to-date, North American printing and writing mills operated at 77% of their capacity, with August inventory level at 848,000 tons, or 15% higher year-over-year, according to the Pulp and Paper Products Council (PPPC). Last year, the mill operating rate for the January-August period was 96% as customers were still in a post-pandemic panic-buying mode and bought much more paper than what they needed, building a lot of inventory.

US consumer confidence saw another decline in September as consumers expressed growing concerns about the future, primarily driven by persistent inflation and expectations of higher interest rates lasting for an extended period. The Consumer Confidence Index, reported by the Conference Board, fell 5.7 points from 108.7 to 103.0 in September, the lowest level since May 2023. The Present Situation Index rose 0.4 points from 146.7 to 147.1, and the Expectation Situation Index decreased 9.6 points from 83.3 to 73.7. Historically, a reading below 80 often signals a recession within a year. …Consumers were less optimistic about the short-term outlook. …The share of respondents planning to buy a home declined to 4.9% in September. The share of respondents planning to buy a newly constructed home decreased to 0.4%, while for those who planning to buy an existing home slightly rose to 2.6%.

The Federal Reserve’s monetary policy committee held the federal funds rate at a top target rate of 5.5% at the conclusion of its September meeting. The Fed will also continue to reduce its balance sheet holdings of Treasuries and mortgage-backed securities as part of quantitative tightening. These actions are intended to slow the economy and bring inflation back to 2%. After an increase in rates in July, the pause for September will likely be temporary. Indeed, the Fed maintained a hawkish bias by noting: “additional policy firming may be appropriate to return inflation to 2 percent over time.” The Fed’s dot-plot projections imply one more 25 basis point increase in 2023 (presumably in November), which would be the last increase for this cycle. Then the Fed will hold this higher rate for longer – with the Fed’s projections suggesting no rate cuts until the second half of 2024. 

Higher mortgage rates averaging above 7% put a damper on single-family production in August, as builders also continue to face supply-side challenges in the form of elevated construction costs, a lack of skilled labor and a shortage of buildable lots. Led by a sharp decline in multifamily production, overall housing starts declined 11.3% to a seasonally adjusted annual rate of 1.28 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. …On a year-over-year basis, single-family housing starts are up 2.4% compared to August 2022. However, single-family housing starts are down 15.1% on a year-to-date basis. The multifamily sector, which includes for-rent apartment buildings and condos, decreased 26.3% to an annualized 342,000 pace for 2+ unit construction in August. On a year-over-year basis, multifamily construction is down 41.6%. On a year-to-date basis, multifamily starts are down 29.3% for 2-4 units and 6.6% for 5+ units.

U.S. housing starts plunged to the lowest levels in more than two years last month, the U.S. Census Bureau indicated Tuesday, as mortgage rates remain near multi-decade highs and the job market shows signs of cooling into the autumn months.  August housing starts fell by a much-larger-than-expected 11.3% from July, the Census Bureau said, to an annual run rate of around 1.283 million units, well shy of analysts’ estimates of a 1.44 million tally and the slowest pace since June of 2020. Builders broke ground on new single family homes at an annualized rate of 941,000, down 4.3% from July and again well shy of economists’ forecasts. Permits for new construction, however,, a good indicator of near-term housing demand, rose 6.9% to a rate of 1.543 million units. … July new home sales hit a 17-month high, in fact, rising 4.4% to an annualized rate of 714,000 as mortgage rates nudged past 7$ to the highest levels since 2001. 

Construction input prices ticked up 1.5% in August, the first increase in six months, due to a surge in energy costs, according to a new Associated Builders and Contractors’ analysis of U.S. Bureau of Labor Statistics Producer Price Index data released Thursday. Overall construction costs remain 0.2% lower than a year ago, while nonresidential input prices inched up 0.2% since last year, according to the report. Although the flattening of costs over the past six months suggested inflation had been cooling, expectations for continued price drops should remain in check, said Anirban Basu, ABC chief economist. “Anyone who thought that excess inflation would simply go away later this year has been rudely awakened this week,” said Basu. “Yesterday’s consumer price data and today’s producer price index indicate that price growth continues to be problematic.”

Persistently high mortgage rates above 7% continue to erode builder confidence, as sentiment levels have dropped below the key break-even measure of 50 for the first time in five months. Builder confidence in the market for newly built single-family homes in September fell five points to 45, according to the NAHB/Wells Fargo Housing Market Index (HMI). This follows a six-point drop in August. The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power. …All three major HMI indices posted declines in September. The HMI index gauging current sales conditions fell six points to 51, the component charting sales expectations in the next six months also declined six points to 49 and the gauge measuring traffic of prospective buyers dropped five points to 30.