Category Archives: Finance & Economics

Consumer confidence in June rose to its highest level in 17 months as recession concerns eased. However, spending plans were mixed. Vacation intentions continued to improve, while the intention to buy homes and big-ticket appliances cooled further due to elevated mortgage rates. This shift in consumer preference from goods to services is likely to continue this year. The Consumer Confidence Index, reported by the Conference Board, increased 7.2 points from 102.5 to 109.7 in June, the highest level since January 2022. The Present Situation Index rose 6.4 points from 148.9 to 155.3, and the Expectation Situation Index climbed 7.8 points from 71.5 to 79.3, the highest since December 2022. However, it’s still lingering around 80 – a level associated with a recession. Consumers’ assessment of current business conditions improved in June. The shares of respondents rating business conditions “good” rose by 4.0 percentage points to 23.7%.

NAHB analysis of Census Construction Spending data shows that private residential construction spending rose 2.2% in May, as spending on single-family homes increased 1.7%. However, total private residential construction spending is still 11.6% lower compared to a year ago. The total construction monthly increase is largely attributed to more spending on single-family construction, It is consistent with the solid gains of single-family starts and the boosting builder confidence in May. Spending on single-family construction rose 1.7% to a $371.3 billion annual pace. It was the first monthly increase since a series of negative growth rates that started in May 2022, amid the elevated mortgage interest rates. Compared to a year ago, spending on single-family construction was 25% lower. Multifamily construction spending dipped 0.1% in May. It was 20.4% over the May 2022 estimates.

The 2022 Survey of Construction (SOC) from the Census Bureau shows that the average completion time of a single-family house is around 9.6 months, including a little over a month from authorization to start and another 8.3 months to finish the construction.  This is almost one month and a half longer than the average completion time in 2021, reflecting supply-side challenges and skilled-labor shortages that persisted throughout the year. …Among all single-family houses completed in 2022, houses built for sale required the shortest amount of time, 8.9 months from obtaining building permits to completion, while houses built by owners (custom builds) required the longest time, 13.4 months. Homes built by hired contractors normally needed around 11.3 months, and homes built-for-rent took about 11.6 months from authorization to completion.

The global Glue Laminated Timber market is forecast to reach $8.8 billion by 2027, according to a new report by Reports and Data. The transition from concrete and steel construction to wood building materials is expected to stimulate market demand. Important attributes such as high insulation, promising thermal performance, and high chemical resistance should positively influence the market. Besides, the advantages such as low cost and ease of construction offered by glue laminated timber compared to other construction materials have made it affordable for all customer segments. The easy availability of wood in the forests of central European countries and the presence of advanced wood processing industries are the main factors responsible for the growth of the market in Europe. Countries like Canada, the United States, Italy, Japan, Australia, and China are rapidly developing markets for glue-laminated timber.

Mixed data has painted a muddled picture of macroeconomic conditions in recent months, though a recession remains the most likely outcome of the rapid tightening of monetary policy and late-stage business cycle dynamics, according to the June 2023 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. While inflation has moderated partly due to slowing domestic and global economic growth, the ESR Group believes continued robustness in the labor market risks an entrenchment of some core inflationary pressures. Lessons learned from the inflationary era of the 1970-80s, a time when price pressures eased and then quickly reaccelerated, lead the ESR Group to expect that the Fed will maintain its restrictive monetary policy stance until it is abundantly clear that inflation pressures from the labor market have eased. However, based on the timing of data releases, that evidence is unlikely to appear until a recession is already unavoidable.

Just as the markets had bought into the idea of the Federal Reserve’s interest-rate pause, they turned tail at the end of last week, bringing into question the idea that a new bull market is under way. This week could shed further light on that notion, as it ends Friday with the release of the personal consumption expenditures index for May. The PCE, less well known than the consumer price index, is an inflation measure to which the Fed pays especially close attention. In April, the PCE was running at an annual rate of 4.4%, while the core index that leaves out energy and food costs was even hotter at 4.7%. Both were up from the prior month. Forecasts call for a slight monthly drop in the rate for May, bringing the annual level to 4.6%.

The Fed’s rate increases are aimed at slowing America’s economy — in part by restraining the housing market — to try to bring inflation under control. Those moves worked quickly at first to weaken interest-sensitive parts of the economy: Housing markets across the United States pulled back notably last year. But that cool-down seems to be cracking. …Housing seems to be finding a burst of renewed momentum. Climbing home prices will not prop up official inflation figures. But the revival is a sign of how difficult it is proving for the Fed to curb momentum in the economy at a time when the labor market remains strong and consumer balance sheets are generally healthier than before the pandemic. …The question is whether the economy can slow sufficiently when real estate is stabilizing or even heating back up, leaving homebuilders feeling more optimistic. So far, the Fed’s leader, at least, has sounded unworried. [to access the full story a NY Times subscription is required]

There are plenty of ongoing reasons for pessimism among lumber traders. A dull start to the year led to an uptick at the end of January, raising hopes that the doom and gloom many had predicted would be off base. However, the run ended shortly after it started, and listless trading was once again the norm. Buyers stuck to the approach they settled on last year, only buying exactly what they need exactly when they need it. The economic headwinds that stalled out the housing market last year continue to linger, joined by fresh concerns about the economic viability of banking institutions. …Despite all of that, by at least one metric there is optimism. The monthly Random Lengths retailer survey has shown an uptick in expectations on a national level throughout 2023 thus far. That’s the opposite of the 2022 trend. …A similar upward trend has also been evident in builder confidence in the single-family sector.

High interest rates are usually bad news for home builders. But right now, they are actually making new homes easy to sell by compounding a shortage of available real estate. The supply of previously owned, or existing, homes for sale has dwindled. …Housing has been the No. 1 contributor to still-high inflation in the U.S. …Even at higher rates there are still people who want to buy a home. …It is part of why new home sales have been pushing higher, while sentiment among builders has begun to recover. None of which is to say that home builders are entirely in clover. But they are doing better than many investors expected. It is beginning to look as if the residential investment component of gross domestic product might have swung into positive territory this quarter from the previous quarter for the first time since the first quarter of 2021. [to access the full story a WSJ subscription is required]

The Top 10 builders captured 43.2% of new single-family home closings (i.e., sales) in 2022, the highest percentage on record based on data released by BUILDER Magazine; this is a 9 percentage point increase from 2021, the largest year-over-year increase since NAHB’s tracking began in 1989.  This share represents 276,941 closings out of the 640,500 new single-family home sales reported by the U.S. Censusin 2022.  However, these closings only represent 27.1% of single-family completions, a broader measure of home building that includes (not-for-sale) home construction. Data for the past three decades reveals a continued upward trend in the top 10 builder share by closings.  In 1989, the top 10 builders captured 8.7% of closings.  By the year 2000, the share was 18.7%; and by 2018, 31.5%, reaching above 30% for the first time.  

WASHINGTON — The American Forest & Paper Association (AF&PA) released the 63rd Paper Industry Capacity and Fiber Consumption Survey. The report provides detailed data on U.S. paper industry capacity and production compiled by AF&PA’s statistics team. U.S. paper and paperboard capacity declined slightly by 0.4% in 2022, to 81.0 million tons. That compares to an average decline of 0.9% per year since 2013. …U.S. paper and paperboard production declined 3.3% last year, with boxboard increasing, containerboard and printing-writing declining, and tissue staying about the same. …Containerboard capacity declined 0.6% in 2022. Containerboard’s share of total paper and paperboard capacity continued to exceed 50%. Meanwhile, boxboard capacity rose 2.4% percent in 2022. …Printing-writing capacity declined 0.7% in 2022 as the sector rebounded from averaging a double-digit decline during 2020 and 2021 due to the COVID-19 pandemic. …Tissue capacity declined 0.4% in 2022. 

Solid demand, a lack of existing inventory and improving supply chain efficiency helped shift builder confidence into positive territory for the first time in 11 months. Builder confidence in the market for newly built single-family homes in June rose five points to 55, according to the NAHB/Wells Fargo Housing Market Index (HMI). This marks the sixth straight month that builder confidence has increased and is the first time that sentiment levels have surpassed the midpoint of 50 since July 2022. A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year. …All three major HMI indices posted gains in June. The HMI index gauging current sales conditions rose five points to 61, the component charting sales expectations in the next six months increased six points to 62 and the gauge measuring traffic of prospective buyers increased four points to 37.

Limited existing inventory combined with solid demand and improving supply chains helped push single-family starts to an 11-month high in May. This occurred despite elevated interest rates and ongoing challenges for housing affordability. Overall housing starts in May increased 21.7% to a seasonally adjusted annual rate of 1.63 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The May reading of 1.63 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 18.5% to a 997,00 seasonally adjusted annual rate. However, this remains 6.6% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, increased 27.1% to an annualized 634,000 pace.

According to the latest Producer Price Index report, the prices of inputs to residential construction less energy (i.e., building materials) decreased 0.1% in May 2023 (not seasonally adjusted), following a 0.2% drop in April. The index has gained 0.3%, year-to-date, a stark contrast from the 10.2% and 4.9% YTD increases seen in 2021 and 2022, respectively. The PPI for goods inputs to residential construction, including energy, declined 0.5% as energy prices drove the index lower. …The PPI for gypsum building materials fell 1.1% for the second month straight and is down 0.4%, year-to-date. …The PPI for softwood lumber (seasonally adjusted) decreased 3.1% after increasing 6.2% the prior month. …Ready-mix concrete (RMC) prices were revised down for April in the latest release. As a result, prices declined last month for the first time since March 2022. Unfortunately, price growth returned in May. …Steel mill products price growth continued to accelerate in May as the index rose 5.2%. 

The Federal Reserve’s monetary policy committee maintained the federal funds rate at a top target rate of 5.25% at the conclusion of its June meeting. …Despite the June pause, the Fed’s projections indicated perhaps two more rate hikes are in store in the coming months. The median forecast for the Fed’s target for the federal funds rate is now 5.6%. The June announcement appears to be a more hawkish outlook for rates than the May decision and communication, which indicated the central bank was close to finishing its tightening cycle. But given the ongoing strong jobs numbers…, the Fed appears to believe more work needs to be done to get the inflation path back to a target of 2%. Alternatively, this may be messaging to markets that rate cuts are off the table for the second half of 2023, which is consistent with our outlook.

U.S. box demand has been consistently worse than the largest box makers expected over the past three quarters — with recent declines among the steepest since the Great Financial Crisis — and recent signs point to more of the same weakness. The largest U.S. boxboard/folding carton producer, Graphic Packaging, presented at a conference Tuesday at which its CFO Steve Scherger said the company is experiencing destocking among retailers following “awkwardly high” demand a year ago. …Box demand hit record highs during the pandemic… However, as Americans’ real average weekly income has consistently fallen for the past two years, they are now having to take on record levels of credit card debt. Consequently, goods demand has dried up. The rate of box shipment declines accelerated throughout Q1, with March down an eye-opening 11%. The three largest producers reported Q1 declines ranging from 8-13%.

Consumer prices in May saw the smallest year-over-year gain since March 2021, mainly driven by lower energy prices. This marked the eleventh consecutive month of deceleration. While this measure aligned with expectations, core inflation remained persistent due to the increase in rent prices. The shelter index (housing inflation) continued to be the largest contributor to both headline and core inflation, accounting for over 60% of the increase in all items excluding 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. …Shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline later in 2023, supported by real-time data from private data providers that indicate a cooling in rent growth.

Solid nominal wage gains (unadjusted for inflation) combined with lower mortgage rates and home prices helped to boost housing affordability in the first quarter of 2023, but ongoing building material supply chain issues and expected cooling of wage growth signal ongoing concerns for affordability conditions in the year ahead. 45.6% of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $96,300.  Although higher than in the final quarter of 2022 (38.1%), the latest HOI is still significantly lower than it was a year earlier (56.9%). The HOI shows that the national median home price fell to $365,000 in the first quarter, down from $370,000 in the final quarter of last year. Meanwhile, average mortgage rates were 6.46% in the first quarter, down from a series high of 6.80% in the fourth quarter.

IRVINE, California — ATTOM released its May 2023 U.S. Foreclosure Market Report, which shows there were a total of 35,196 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — up 7 percent from a month ago and up 14 percent from a year ago. “The recent increase in foreclosure filings nationwide indicates a trend that has been observed throughout the year, and what we have expected to occur,” said Rob Barber, CEO. “This upward trajectory suggests the possibility of continued heightened activity, and with foreclosure completions seeing the largest monthly increase this year, we will continue to monitor the potential impacts this may have on the housing market.” Illinois, Maryland and New Jersey post highest foreclosure rates. … The greatest numbers of foreclosure starts in Florida, California and Texas. …Foreclosure completion numbers increase 38 percent from last month.