2017: A Good Year for the Economy

By all but a few financial and economic measures, 2017 will be marked as a good year. Aside from the well-documented gains in the stock market, many sectors of the U.S. economy showed a remarkable improvement over 2016. Last year’s performance, combined with key government policies adopted such as the tax reform bill and an appreciable reduction in business regulations, portend a strong economy for 2018.

Below is a general overview of leading indicators demonstrating the health of the U.S. economy, starting with residential construction markets that are closest to NKBA members’ businesses:

Gross Domestic Product (GDP), the overall measure of the U.S. economy, recovered strongly last year after nearly a decade of subpar performance. GDP grew about 3% in the last three quarters of 2017. This is about double 2016’s growth of 1.5%

More importantly, business investment rose by nearly 4% last year. This came on the heels of a decline of 0.6%.

Naturally, job creation is the backbone of a strong, growing economy. The U.S. continued on its traditional pattern of creating millions of jobs annually. Last year’s performance would have been better, but was hampered by the major hurricanes that devastated parts of Texas and Florida.

NKBA Economic Dashboard

Only one variable in the NKBA dashboard was updated last week: the mortgage rate. It rose to 3.99%, up 0.05%, or five basis points, for the largest increase in over two months.

This increase is partly a response to the tightening that the Federal Reserve Bank made in mid-December, when it raised the Federal Funds Rate to 1.5%. Mortgage rates are expected to increase further this year, along with the strengthening economy. A stronger economy leads to greater demand for housing and, thus, greater demand for mortgage loans.

Also, the Fed will raise the Federal Funds Rate further this year, continuing its policy of divesting itself of all the securities it acquired after the 2007-2009 recession.

Manuel Gutierrez, Consulting Economist to NKBA

Explanation of NKBA’s Economic Indicators Dashboard

The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.

Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.

Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.

Single-Family Starts.  This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.

Existing-Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.

High-End Home Sales. This series are sales of new homes priced at $750,000 and higher. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.

Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.

Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.

Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.

Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers, for instance.

We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.