Economy Still Robust
The NKBA Economic Indicators Dashboard clearly shows the strong status of the U.S. economy — virtually all indicators are up, and most of the them are green, indicating a positive outlook. The only exception is appliance-store sales, which suggests the declining performance of stores dedicated to selling household appliances. Their business has been eaten away by home-improvement stores like Home Depot, electronic chains such as Best Buy, and of course, Amazon.
Foreign Trade Deficit Worsens
The U.S. foreign trade deficit widened to $57.6 billion in February, a 1.6% deterioration from the prior month. Moreover, as can be seen in the chart, February’s deficit was nearly 20% higher than the average of the preceding 12 months, which was $48 billion.
The deteriorating trade deficit reflects nothing more than the improving U.S. economy. Nearly an additional 2.2 million people obtained employment last year. More people employed means greater earnings that lead to more purchases of goods and services, including both domestic- and foreign-made. It should come as no surprise to see an increasing deficit. This is illustrated in the chart below.
The annual trade deficit rose steadily through the Nineties and early 2000s, driven by a booming economy — in common parlance, the trade deficit got worse in those years. When did the deficit improve? As can be seen in the chart, between 2006 and 2009.
But something to keep in mind when thinking about the trade deficit is that the deficit is the result of an exchange. Americans are buying goods and services from foreign countries — imports — and in exchange, they buy from us — our exports. The gap between imports and exports is the deficit. How is the difference made up? If we buy more from them, we pay with dollars, or IOUs. They in turn either hold onto those dollars for future use or, more likely, invest in the U.S. in new factories or businesses — which could ultimately be good for American businesses.
Consumers Remain Concerned About Trade
Consumers’ views on the economy pulled back in April with the University of Michigan’s Consumer Sentiment Index falling to 97.8, erasing the gains made in the previous two months. However, consumer confidence still remains high despite these losses.
The University of Michigan reports that the Trump administration’s trade policy talks have created concern among a group of consumers in particular. Overall, the “expectations” components of the index fell modestly to 86.8 — a two-point decline from March. However, the survey reveals that consumers who made negative references about trade in the survey had an average expectations index value of just 64.2, significantly lower than 93.9 average among those consumers who did not mention trade negatively in their comments.
Mortgage Rates Virtually Unchanged
Although mortgage rates rose by two basis points last week, or 0.02%, the increase is not likely to have an impact on residential construction markets. In fact, for the last two months, average mortgage rates have remained within a very narrow band between 4.38% and 4.45%.
But this is not to say that they will remain the same over the remainder of this year. This is because the Federal Reserve Bank, which has a great influence on interest rates, has signaled a more aggressive posture under its new chairman, Jerome Powell. The Fed has actually revised its projections for GDP growth up to 2.7%, from the previous 2.5% projected in early March, and that could lead to further increases in mortgage rates.
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 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.
