NEW$ & VIEW$ (27 FEBRUARY 2014)

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U.S. New Home Sales Surge in January, Led by Northeast

New single-family home sales rose 9.6% to a seasonally adjusted annual rate of 468,000 from a month earlier, reaching their highest level since July 2008, the Commerce Department said Wednesday. From a year ago, new-home sales were up 2.2%.

Last month’s increase was boosted by sales in the Northeast, where activity expanded by 73.7% and reversed the prior month’s declines. The South and West also saw gains, but new home sales in the Midwest fell.

December sales were revised to 427,000 from 414,000. (Charts from Haver Analytics)

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Winter woes?

U.S. Durable Orders Fall in January

Click to ViewOrders for durable goods—products from kitchen appliances to bulldozers designed to last three years or more—fell a seasonally adjusted 1% from December, the Commerce Department said Thursday. That marked the second consecutive drop after overall orders fell 5.3% in December.

But excluding the volatile transportation category, orders rose 1.1% last month, the strongest rise since May. Defense spending on capital goods was up sharply. Orders for computers and electronics climbed, but demand for machinery, primary metals, and autos fell. (…)

Pointing up A closely watched measure of business spending—orders for nondefense capital goods excluding aircraft—climbed 1.7% in January, reversing December’s 1.8% fall. Orders in that category have climbed for two of the last three months, though from a year earlier they were down 1.7% in January.

Going sideways lately (Chart from Doug Short).

U.S. Jobless Claims Rose by 14,000 Last Week

The four-week moving average of claims, considered a more-reliable indicator because it smoothes out week-to-week gyrations, held steady last week at 338,250.

U.S. EMPLOYMENT LOOKING BETTER

Very interesting post from Ed Yardeni: Consumers Seeing More Jobs

The present situation component of the Consumer Confidence Index (CCI) rose to a new cyclical high this month, exceeding the expectations component for the first time during the current economic expansion. Buoying consumers’ optimism about the here-and-now is their assessment that the labor market is improving. In some ways, the CCI survey may provide a clearer picture of this market than the cacophony of data provided each month by the Bureau of Labor Statistics in its employment report. The picture continues to get brighter:

(1) Jobs are more plentiful. I am especially fond of the survey’s series tracking the responses to questions about whether jobs are plentiful or hard to get. The former jumped to 13.9% this month from 12.5% in January. That may not seem like much, but it is the best reading since June 2008. The percentage of respondents agreeing that jobs are hard to get fell to 32.5%, the lowest since September 2008.

(2) More jobs are boosting confidence. I found that the CCI’s present situation component is highly correlated with the difference between the jobs-plentiful and the jobs-hard-to-get series. In other words, jobs drive consumers’ confidence about their current well-being.

(3) Survey response is confirming falling jobless rate. There is even a better correlation between the official unemployment rate and the jobs-hard-to-get series. We all know that the unemployment rate has dropped during the current economic expansion, mostly because of a sharp decline in the labor force participation rate. If people are dropping out because they are discouraged by the lack of jobs, then the jobs-hard-to-get series should not be falling in lock-step with the unemployment rate. But it is suggesting that labor market conditions really are improving and that other factors are behind the falling participation rate.

Hopeful Signs on New-Home Supply Crunch Lending for land development and construction is turning up after hitting a 14-year low early last year, a sign that the supply crunch for new homes could ease in coming months.

Data released Wednesday by the Federal Deposit Insurance Corp. show that the outstanding balance on loans for land acquisition, development and construction rose in the fourth quarter to $209.9 billion, compared with $206 billion in the third quarter. While that’s a relatively small gain, economists note that if the overall balance is growing it means that originations of new loans are likely rising even faster. It was the third consecutive quarter of growth.

An increase in lending would spur additional home construction and possibly put downward pressure on prices, which have been rising rapidly over the past two years and weighing on the housing recovery. Last year, the average price of a new U.S. home was $322,100, up 10.2% from 2012 and the highest annual figure since the Census Bureau began tracking new-home prices in 1963.

While the rising prices are great news for sellers, the tight supply of homes has priced many would-be buyers out of the market. (…)

Even before the FDIC issued its latest data, companies that build homes had noted a change in sentiment from lenders.

“I hadn’t gotten calls for years from banks, but now I get calls from them all the time,” said C. Pat DiFonzo, president and owner of housing developer Zena Land Development LP in Grapevine, Texas. “They’re all chasing deals now.”

Other figures underscore the rebound in lending for residential projects.

According to the FDIC, outstanding loans solely for construction of homes—excluding development, land acquisition and commercial projects—increased to $43.7 billion in the fourth quarter, up from a recent low of $40.7 billion in last year’s first quarter. The FDIC has tracked that measure only since 2007. (…)

Bankers say they are opening their doors a little wider to construction in part because borrowing by companies in other sectors has been weak. “The banks, especially the community and midsize banks here in Atlanta, can’t get all of their loan growth,” said Stephen Palmer, manager and chief financial officer of Home South Communities, a closely held builder in Atlanta. “I have today triple the commitments that I need for construction financing.”

While lenders aren’t keeping their doors tight, they aren’t wide open either. Particularly difficult to obtain are loans for land acquisition and development, which entails installing infrastructure such as roads and utilities—endeavors that lenders consider more risky than home construction. Smaller, cash-strapped builders still face a challenge in landing loans. (…)

France unemployment hits record Number of jobseekers increases 0.3% over December

The latest figure, published on Wednesday by the labour ministry, brings the total number of unemployed to a record 3.32m – about 11 per cent of the workforce. The total number of those seeking a full-time job, including those in part-time work, reached 4.92m.

One bright spot in the figures was that January’s rise was slower than the 10,200 of newly registered unemployed reported in December and the 17,800 increase in November. On Wednesday, Michel Sapin, the labour minister, seized on that fact as a sign of changing fortunes.

China Engineered Decline of Yuan China’s central bank engineered the recent decline in the country’s currency as part of its efforts to prepare the tightly tethered yuan for wider trading. The move is the clearest sign yet that leaders are pressing ahead on financial reforms.

(…) In the past week, the People’s Bank of China has been guiding the yuan lower against the dollar by setting a weaker benchmark against which the yuan can trade. It has also intervened in the currency market by directing state-owned Chinese banks to buy dollars, according to traders. That has helped further push up the price of the dollar against the yuan.

“The PBOC is testing the market as it prepares to widen the yuan’s trading band,” said one of the people familiar with the bank’s thinking. (…)

Surging inflows of capital have been complicating Beijing’s efforts to manage the economy, contributing to soaring property prices and injecting excess cash into the financial system. The central bank and commercial banks bought nearly $45 billion worth of foreign exchange in December, the fifth consecutive month of net purchases. A weaker yuan could also help exporters, whose goods would be cheaper in the U.S. and other foreign markets. (…)

The PBOC decided to tamp down expectations for one-way appreciation in the yuan and curb speculative trading during a two-day currency-policy meeting that ended Feb. 18, the people said.

At the meeting, a deputy governor, Hu Xiaolian, called for greater efforts to prevent risks from cross-border capital flows and joined other officials in expressing concern about “hot money” inflows, according to a PBOC statement issued after the meeting. The PBOC also decided to expand the yuan’s trading band this year in an “orderly” manner, the statement said, as it moves toward making the yuan a freer currency.

On Feb. 19, the day after the meeting, the yuan started its recent slide, falling to the lowest level in almost two months. (…)

PBOC officials have said in the past that the yuan is nearing its fair-market value, or “equilibrium level,” meaning the chances of any drastic movements in the currency are limited. By making the currency more of a two-way bet, officials hope to relieve the pressure for it to rise and ease the way to widen the trading band, according to the people with knowledge of the thinking. (…)

Morgan Stanley Warns Of “Real Pain” If Chinese Currency Keeps Devaluing

The seemingly incessant strengthening trend of the Chinese Yuan (much as with the seemingly inexorable rise of US equities or home prices) has encouraged huge amounts of structured products to be created over the past few years enabling traders to position for more of the same in increasingly levered ways. That was all going great until the last few weeks which has seen China enter the currency wars (as we explained here). The problem, among many facing China, is that these structured products will face major losses and as Morgan Stanley warns “real pain will come if CNY stays above these levels,” leading to further capital withdrawal, illiquidity, and a potential vicious circle as it appears the PBOC is trying to break the virtuous carry trade that has fueled so much of its bubble economy. (…)

Brazil’s Economy Picks Up

(…) The economy grew by 0.7% compared with the third quarter, and by 1.9% compared with the fourth quarter of 2012, according to the Brazilian Institute of Geography and Statistics, or IBGE.

For the full year, Latin America’s largest economy expanded 2.3%. According to the central bank’s latest weekly survey, growth in 2014 is expected to be 1.67%, down from a forecast of 1.79% the week before.

Industry contracted 0.2% compared with the third quarter, while agriculture was stable and services advanced 0.7%, according to IBGE.

Consumption, one of the major drivers of the economy in recent years, picked up pace in the fourth quarter. Household consumption expanded by 0.7% in the fourth quarter, while government consumption rose 0.8%.

Investment in 2013 totaled 18.4% of gross domestic product, up slightly from 18.2% in 2012 but still far below the level that economists believe is necessary to unlock faster economic growth. The country’s savings rate was equivalent to 13.9% in 2013.

SENTIMENT WATCH

“We’re definitely in a bull market and a bull psychology,” Terry Morris, a senior equity manager at National Penn Investors Trust Co., said. “Investors are inclined to buy and you don’t want to get in the way.”

“It’s very hard to be a bear on U.S. equities,” said Michael Purves, chief global strategist at Weeden & Co. His year-end target for the S&P 500 is 2,100. “U.S.
equities are the most logical place to go,” he said. “I’m a bull on equity prices but it’s going to be a rockier ride in 2014 than it was in 2013.” (BloombergBriefs)

 

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