Jack Dunn - Reclaiming Common Sense

This past week was a busy week for economic data. The CPI report was released - inflation is approaching 3.0%. Retail Sales information was released. Six sectors had lower sales during February 2017 than they recorded during February 2016.We also saw the release of the February Treasury report, which will be reviewed later this week, the unemployment claims data, and the Job Opening and Labor Turnover Survey (JOLTS) for January. The JOLTS data will be reviewed later this week, too. Another key report that was released was the February New Construction data. Where other analysts are approaching this from a "past Presidency Perspective," what happened during  the Obama years, this column takes a look at the data from what happened since the 1970s perspective.We have to examine the Starts data, the under construction data, and the completions data. It is important to look at this data prior to receiving the New home sales data later this month. It may be of interest to the readers to know that I was a Realtor for 15 years.


New Home Starts Better than 2009-2016; Worse than 1992 through 2008. You will read elsewhere that this is the best data in almost a decade. The problem is that the data we saw during 2009 was the worst we had seen over the prior 30 years. This data is expressed in the red histogram. We are seeing a slow and steady increase in starts, as is expressed in the red line chart. Here's the thing: this is a pace better than the 1983 level, a benchmark we track regularly last year, and worse than the 1992 rate. New home construction leads to new home sales. New home sales lead to synergistic sales in furniture, appliance and electronics, and even automobiles. Who wants a beater in a new garage?


The Under Construction Data is Soaring. This phenomenon was noted last year, as well. We have only been in this rarefied air a few time during the past 41 years.  The Great Recession was a Housing Recession, a Jobs Recession, and a Retail Sales Recession, as well as a GDP recession. The housing bubble was created by low interest rates, lenient lending requirements, and creative financing, including and not limited to 80% first mortgages, 20% seconds, 100% and higher refinancing loans, 3-2-1 buy-downs, and no document loans.  The question about this large inventory of homes under construction is "Is this a good thing?" We have a low level of existing homes up for sales. We will receive that data February 22nd. New home constructions, and new home sales, may help relieve some of the existing home pressure. Lower supply and steady demand could drive up existing home prices during the short run. Over-supply of new home inventory may reduce the average sales price.


Completions are at he Highest Level for February during the past Nine Years - Still lower than 1992-2008. Does this data sound familiar? It is the same situation for new home starts. We need starts for under construction data. We need under construction data for completions. We need completions for sales. The running year completions data for total units is at 1.063 million units. This, too, is better than the 1983 data for February and worse than the 1992 level. The pace of growth is fast than starts because this set of completions data is for units - which includes multi-family housing.


Advance, Preliminary, and Final Revisions matter. The starts data revisions meant that the rolling year data was unchanged month to month. The completions data for January was revised up more than the downward revision for  December, allowing the rolling year data to improve. This was the advance data for February. Next month we will receive the preliminary January data and the advance March data. The following month we will receive the final January data, preliminary March data, and advance April data The data was better than we have seen during the past eight years, worse than what we should be seeing.


It's the economy.