Tag Archives: Gross domestic product

JCHS: Remodeling Recovery Underway and Picking Up Steam

Remodeling Recovery Underway and Picking Up Steam

 by Abbe Will
Research Analyst

All signs point to a strong rebound for home improvement activity in 2013, according to our latest Leading Indicator of Remodeling Activity (LIRA).  Robust spending in the second half of 2012 suggests the remodeling recovery is already underway, and the LIRA projects annual homeowner improvement spending will see accelerating double-digit growth through the third quarter of 2013. This news comes just ahead of the release of our biennial remodeling report, The U.S. Housing Stock: Ready for Renewal, coming out next Wednesday, January 23.

It’s encouraging to see the residential sector finally contribute to growth in our economy. Through the first three quarters of 2012, investment in the residential sector was responsible for one out of every six dollars added to our GDP.  Moving forward, home improvement spending is expected to make an even larger contribution to GDP growth.
There are many external economic and political risks that could derail this remodeling recovery, but the solid momentum behind home building activity, existing home sales, low financing costs, and remodeling contractor sentiment all point to a solid start to the new year for home improvement spending. (Click chart to enlarge.)
 lira_2012_q4
For more information about the LIRA, including how it is calculated, visit the Joint Center website.

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JCHS: Sizing Housing’s Role in the Economy Before and After Recessions

Sizing Housing’s Role in the Economy Before and After Recessions

by Dan McCue
Research Manager
The most direct measure of housing’s impact on the economy is Residential Fixed Investment (RFI). RFI includes spending on construction of new housing units and manufactured homes, as well as improvements spending, brokers’ commissions on the sale of residential property, spending on some types of built-in equipment (such as heating and air conditioning equipment), and also net purchases of residential units from the government.
In any single period of time, RFI is a modest part of the total output of the US economy as measured by gross domestic product (GDP). According to the US Bureau of Economic Analysis’s National Income and Product Account (NIPA) tables, which provide quarterly GDP data for most series dating back to 1947, RFI has on average represented just 4.2% of the economy. In terms of economic growth, however, growth in RFI can have influence that far exceeds its share of the economy (Figure 1). This is particularly the case in the time periods around recessions, when decline or growth in RFI can account for 15 or even 20 percent of overall decline or growth in GDP – enough to push the economy into or out of a recession (seeLeamer (2007) “Housing IS the Business Cycle“). Prior to the Great Recession of 2007-9, for example, the preceding downturn in RFI alone shaved fully 1 percentage point off of GDP.
 1219_mccue_figure1
Note: Shaded areas are recessions.

Source: JCHS tabulations of BEA and NBER Business Cycle data.In the five recessions that occurred prior to the Great Recession between 1970 and 2001, housing construction was both a drag on the economy leading into the recessions and a buoy immediately afterwards (Figure 2). In the four quarters leading into each of these recessions, RFI’s contribution to GDP growth was normally negative, ranging from a mild -0.1 percentage point prior to the 2001 recession up to a half a percentage point drag on GDP prior to the 1980 double-dip recession. Following these recessions, RFI’s influence not only returned positive, but its positive contribution to GDP growth generally skyrocketed to several multiples above normal. The average percentage point contribution of RFI to GDP growth ranged from 0.3 to 1.1 percentage points in the first year after each of the past five recessions. Such growth in RFI during those periods equated to about one-fifth of all GDP growth at the time – a nice boost to the economy.

RFI’s positive contribution to GDP following the Great Recession has been nowhere near those seen after past recessions. As shown in figure 2, while RFI’s drag on GDP heading into the Great Recession exceeded that heading into any recession since 1970, RFI provided just 0.1 of a percentage point to GDP in the first four quarters after the recession, and was still providing negligible impact fully nine quarters after the recession officially ended. However, the third quarter of 2012 marks 13 quarters after the Great Recession, and RFI’s impact to GDP over the past year has been consistently positive on the order of 0.3 percentage points, or about 12 percent of current GDP growth. With housing construction starts rising, the positive economic contributions of RFI will follow.

1219_mccue_figure2

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The Housing Bottom and the Unemployment Rate

The Housing Bottom and the Unemployment Rate

by Bill McBride on 10/15/2012 

Early this year when I wrote The Housing Bottom is Here and Housing: The Two Bottoms, I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.

For the bottom in activity, I presented a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

When I posted that graph, the bottom wasn’t obvious to everyone. Now it is, and here is another update to that graph (and a repeat of some analysis).

Starts, new home sales, residential InvestmentClick on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

For the current housing bust, the bottom was spread over a few years from 2009 into 2011. This was a long flat bottom – something a number of us predicted given the overhang of existing vacant housing units.

Housing plays a key role for employment too. Here is an update to a graph I’ve been posting for a few years. This graph shows single family housing starts (through August) and the unemployment rate (inverted) also through September. Note: there are many other factors impacting unemployment, but housing is a key sector.

Housing Starts and Unemployment RateYou can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn’t hold.

Housing starts (blue) increased a little in 2009 with the homebuyer tax credit – and then declined again – but mostly starts moved sideways for two and a half years and only started increasing last year. This was one of the reasons the unemployment rate remained elevated.

Usually near the end of a recession, residential investment (RI) picks up as the Fed lowers interest rates. This leads to job creation and also additional household formation – and that leads to even more demand for housing units – and more jobs, and more households – a virtuous cycle that usually helps the economy recover.

However, following the recent recession with the huge overhang of existing vacant housing units, this key sector didn’t participate. This time the unemployment rate started falling before housing starts picked up.  Going forward I expect housing activity to increase and help push down the unemployment rate. Unfortunately I expect the housing recovery to be somewhat sluggish.

Read more at http://www.calculatedriskblog.com/2012/10/the-housing-bottom-and-unemployment-rate.html

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About that “Housing Recovery” — PragCap

About that “Housing Recovery”

I am beginning to see the term “housing recovery” all over the place these days.  I googled “housing recovery” and narrowed the results down to the last 30 days and 3,900 results show up.  It sure seems like the “housing recovery” has become a widely accepted fact.  Now, I’m no longer some big housing bear like I was for so many years.  I actually don’t think there’s much downside in US residential real estate, but I also think we’re getting a bit ahead of ourselves here.      Let’s take a look at the data just for some broader perspective.

The most damning chart for the “housing recovery” is house prices themselves.  What’s sparked all the recovery chatter?   Strangely, it’s been that 2.5% spike off the bottom.  The current bounce is actually much weaker than the 6%+ spike we saw in late 2009:

Okay, but prices aren’t everything.  Surely, the underlying data is starting to look better also, right?  I guess it’s all relative and in this bizarro Great Recession world where “good” would have once been considered “bad”.  The next few charts are just big broad housing indicators.  As you can see, they’ve certainly “recovered”.  Recovered right back to some of the worst levels in US history:

Housing Starts

Building Permits

New Home Sales

I hate to rain on the parade here because housing stability has been a huge factor in my “no recession” call over the last year +, but I think we have to keep some perspective here as well.  I don’t know what the technical definition of a “recovery” is in economics, but this is not a “recovery”.  It might be a “stabilization”, but let’s not go all crazy abusing the english language here.  I was a housing bear for years and years and I am infinitely more optimistic about the state of US housing here.  But let’s be honest here.  This is no “housing recovery”.

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The Housing Bottom and the Unemployment Rate

The Housing Bottom and the Unemployment Rate

by Bill McBride on 8/10/2012  

Early this year when I wrote The Housing Bottom is Here and Housing: The Two Bottoms, I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.

For the bottom in activity, I presented a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

When I posted that graph, the bottom wasn’t obvious to everyone. Now it should be, so here is an update to that graph.

Starts, new home sales, residential InvestmentClick on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

For the current housing bust, the bottom was spread over a few years from 2009 into 2011. This was a long flat bottom – something a number of us predicted given the overhang of existing vacant housing units.

Now the question is: How strong will the recovery be? (I think it will be somewhat sluggish compared to previous recoveries).

Housing plays a key role for employment too. Here is an update to a graph I’ve been posting for a few years. This graph shows single family housing starts (through June) and the unemployment rate (inverted) also through July. Note: there are many other factors impacting unemployment, but housing is a key sector.

Housing Starts and Unemployment RateYou can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn’t hold.

Housing starts (blue) increased a little in 2009 with the homebuyer tax credit – and then declined again – but mostly starts moved sideways for two and a half years and only started increasing last year. This was one of the reasons the unemployment rate has remained elevated.

Usually near the end of a recession, residential investment (RI) picks up as the Fed lowers interest rates. This leads to job creation and also additional household formation – and that leads to even more demand for housing units – and more jobs, and more households – a virtuous cycle that usually helps the economy recover.

However, following the recent recession with the huge overhang of existing housing units, this key sector didn’t participate. Going forward I expect housing activity to increase and help push down the unemployment rate. Unfortunately I expect the housing recovery to be somewhat sluggish.

Read more at http://www.calculatedriskblog.com/2012/08/the-housing-bottom-and-unemployment-rate.html

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Will Housing Lead or Follow in a Slow-Growth Economy?

Eye on the Economy: Will Housing Lead or Follow in a Slow-Growth Economy?

by David Crowe — Eye on Housing

*Eye on the Economy is an NAHB newsletter that is published every two weeks and takes a larger view of recent economic and housing policy news.

Job creation and economic growth have been weak in 2012. While gross domestic product (GDP) and total employment have expanded, their respective rates of growth have been disappointing given the high unemployment and prior wealth declines connected with the Great Recession.

Despite ongoing negative economic news, housing and home building stand out as sources of positive developments. However, some analysts have questioned whether the good news for housing can continue in the face of slow growth, the impending fiscal cliff, and continuing financial crises in Europe.

It is useful to remember that housing typically leads the economy out of recession. As interest rates fall, home building can have an outsized impact on GDP growth. And as employment growth continues (even if slowly), interest rates remain low and credit access improves, housing demand will continue to expand, yielding a virtuous cycle of benefits for both housing and the overall economy.

For these reasons, we believe that housing and the home building sector will continue to expand, albeit at a rate that is slower than history would suggest is normal for a recovery.

Overall, growth of real GDP slowed, falling from a 2% growth rate for the first quarter of the year to only 1.5% for the second quarter. A primary reason was a decline in the rate of growth of personal consumption expenditures (PCE), which fell from 2.4% to 1.5% from the first to second quarter. The decline in PCE also resulted in an increase in the personal savings rate, which has been declining fairly consistently since the beginning of 2011 as household balance sheet repair progressed.

As other components of GDP slow their growth, the role of home building becomes increasingly important. Residential fixed investment constitutes approximately 2.7% of GDP but has provided an outsized contribution of economic growth in 2012. For the first quarter, home building added 0.4 percentage points to real growth, or 22% of the total. For the second quarter, home building generated 0.2 percentage points of growth, or 14% of the total.

Recent employment reports have reflected the trend toward slower growth. Data from the Bureau of Labor Statistics (BLS) indicated that163,000 net jobs were added for the month. While this is still less than what is needed for an economy with an 8.3% unemployment rate, the July number was an improvement after three consecutive months of below 100,000 job growth.

Data from the BLS Job Opportunity Labor Turnover Survey (JOLTS) suggest that a continuing disconnect exists between open jobs and available job seekers. Since 2010, the job openings rate has consistently risen, from about 2.2% of total employment to 2.7%. However, the hire rate has remained flat, suggesting that the employers are having a difficult time filling open positions, perhaps due to a skills gap or ongoing challenges in housing that are reducing population mobility.

The inevitable product of weak economic expansion and disappointing employment growth is sagging consumer confidence. While the Conference Board’s Consumer Confidence Index and the University of Michigan Consumer Sentiment Survey reported consumer confidence moving in opposite directions this month, the three-month moving average of both indexes reveal that consumer confidence has trended lower from multi-year highs over the course of the last few months. Weakening consumer confidence is a reason why PCE growth has declined in 2012. It may also be related to a small decline in the National Association of Realtors Pending Home Sales Index, which decreased 1.4% in June.

While declining consumer confidence and weak employment growth are downside indicators for short-term housing demand, NAHB Economics recently examined a long-run positive contributor: the impacts of immigration on demand for both owner-occupied and rental housing. The analysis found that net immigration is forecasted to add 3.4 million U.S. households, occupying more than 2 million multifamily units and 1.2 million single-family homes over ten years. This will add to demand for both owner-occupied and rental housing.

Thus, with improving macroeconomic conditions, particularly those that unlock pent-up housing demand, the ongoing regional improvements in housing markets can yield a housing-led economic expansion. As of August, 80 metropolitan areas are counted on the NAHB/First American Improving Markets Index, a conservative accounting of housing markets that demonstrate improvement with respect to local employment, housing prices and home building. The reading of 80 is down from 84 in July, but this total still represents about one-quarter of the nation’s metro areas.

In fact, more areas are likely to report improving conditions with respect to housing prices. Prices are up, according to the May Case-Shiller 10- and 20-city composite house price indexes, which both increased 2.2% from April to May. Moreover, the improvement was widespread, with all 20 metro components up, ranging from 0.4% in Detroit to 4.5% in Chicago on a non-seasonally adjusted basis.

Nationwide, the homeownership rate was unchanged for the second quarter of 2012, coming in again at 65.6% on seasonally adjusted basis, according to the Census Bureau. While this level remains near a 15-year low, declines in the rate itself may be coming to an end as a housing recovery takes hold in a greater number of locations.

The growing housing recovery is certainly evident in the Census Bureau’s construction spending reports. Private residential construction spending was up for the third consecutive month in June, reaching its highest level since early 2009 on nominal basis. According to the three-month moving average, residential construction spending has risen for each of the last nine months.

Construction spending on new single-family homes jumped 3% on a month-to-month basis and has staged nearly a 19% improvement from the same period a year ago. Multifamily construction spending increased 3.4% during June and has experienced gains in each of the last nine months. Overall, spending on new multifamily units has increased by 66% from its low point in August 2010.

Home improvement spending slipped on a month-to-month basis in June, continuing its see-saw pattern of the last several months. Remodeling activity has remained in a relatively tight range for the past two years. This reading of home improvement activity is also consistent with the NAHB Remodeling Market Index, which fell two points to 45 for the second quarter of 2012.

Despite the slowing of economic growth, recent policy statements from the Federal Reserve’s Open Market Committee offered no commitments to future rounds of quantitative easing, but instead reiterated its policy of keeping interest rates low through the end of 2014.

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Housing to the Rescue Again? — PRAGCAP

Housing to the Rescue Again?

I got this email from Warren Mosler this morning.  He wrote:

“Looks to me like housing is finally in a very sustainable uptrend, supported by adequate federal deficit spending, modestly improving personal income, relatively high affordability, low consumer debt ratios, very low levels of actual inventory,tightening rental markets, etc. etc.

And looks to me that housing starts could double and still be at relatively low levels, so there’s years of upside with modest growth rates.

It also means GDP could gravitate up to the 3-4% range by year end, and stay above 0% even should we go over the fiscal cliff.”

The big thing is that it would be very unusual for GDP to contract with this sort of activity in the housing market starting to pick-up.  It’s just not consistent at all with recession.  As you can see in the chart below housing starts are always declining heading into a recession.  Granted, they’re not exactly booming right now, but this still isn’t consistent with recession.   I still think 2013 is the year of recession risk (maybe, just maybe Q4 2012 if the fiscal cliff actually materializes).  So I wouldn’t put me in the “very sustainable” housing recovery camp (I think we’re in for a post-bubble work out so there will be no bottoming “event” in housing).  But this seems to be a bit of good news for now in an otherwise sea of bad news…..

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