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U.S. Housing Starts Drop 2% in January… The number of new homes started last month, both single family and multifamily, fell from their December level. While the fall was slightly more than the estimated drop, the 6.7% decline in single family home starts surprised the markets, and canceled out most of the 7.9% gain in December.
What it means — Same story, different month. Home construction still is not providing a big boost to the economy. Even though the National Association of Realtors assures us that the big boost in home buying, and therefore home construction, is just around the corner, it never seems to arrive. The usual suspects are to blame — stagnant wages, consumers with unsettled futures, and student loans weighing on young families that would normally be purchasing homes.
What makes this data point more relevant today than in previous reports is that with energy prices falling, our economy can’t rely on the energy sector to provide middle-income employment opportunities. With both energy and construction sidelined, there aren’t many sectors left that have the potential to provide this level of compensation to large numbers of workers. Our jobs market most likely will keep adding workers disproportionately to the lower rungs of income.
U.S. Industrial Production Up 0.2% in January, Capacity Utilization Unchanged at 79.4%… The industrial sector gained little ground last month, while the overall use of industrial capacity in the U.S. was flat from December.
What it means — The levels here aren’t very interesting, but the revisions to the December figures were notable. Industrial production in December was revised from 0.1% decline to drop of 0.3%. Capacity utilization, the proportion of productive output used, dropped from 79.7% to 79.4%. Manufacturing was reduced from 0.3% to 0.0%.
With the December numbers revised lower across the board and January numbers flat or barely higher, the U.S. industrial sector appears to be reaching a plateau. Given that so many U.S. companies sell products abroad, this isn’t surprising. The tepid growth in the U.S. is the envy of the developed world. As other nations struggle to keep their economies at least flat if not growing, they don’t need or want as much stuff from us. Another factor is the strong dollar, which makes American exports less affordable.
Greece and European Union Officials Trade Accusations… Greece delivered its plan for extending emergency financing from the troika, which European officials immediately rejected.
What it means — At time of writing, there was no deal. Without more funding, Greece will run out of money by the end of the month. Social payments, including pensions, will cease. The brinkmanship continues, but there is another week for the two sides to come together.
While Syriza won the recent election, they still only pulled a bit more than 35% of the vote. Eighty percent of Greeks want to stay in the euro. The new Greek leaders should keep this in mind as they negotiate with the euro zone leaders.
Chinese New Home Prices Down 5.0% Year-Over-Year, the Largest Drop on Record… New home prices fell last month in 64 of the 70 cities that are tracked. The annual drop of 5.0% comes after a 4.3% decline in December, so the drop is accelerating.
What it means — In a country where home buyers typically put down 50%, or even pay 100% cash for their homes, a drop of 5% might sound like small potatoes. The size of the decline is not the problem. It’s the fact that prices fell at all. It is only in the last 30 years that the Chinese have been allowed to own real estate.
Except for the sharp drop and recovery in 2008 and 2009, property prices have consistently moved higher. The last year proves that, even without a financial crisis, prices can fall. This is very important since 74% of household wealth in China is invested in real estate.
If consumers believe the trend in home prices has reversed or even flattened, they’ll put their dollars somewhere else, which will significantly slow the property market in China, causing a drop in domestic investment, complete with falling employment and lower commodity prices. This is exactly what we have been watching for and writing about for the last couple of years. If the slide in Chinese property prices picks up speed, this could be one of the catalysts that takes down the global economy.
Japanese GDP Growth Disappoints, Up 2.2%, Missing Expectations of 3.7%… Slow GDP growth in the fourth quarter of 2014 followed negative reports in the second and third quarters. For the year Japanese GDP was flat.
What it means — The last sentence is the most important. With the Bank of Japan (BoJ) printing yen by the bucket, and private companies awash in profits due to the weakening currency, the country still couldn’t manage to post positive GDP numbers for 2014.
The economic policies of Prime Minister Shinzo Abe have failed.
Even if the country does manage to grow modestly in the first quarter of this year, it won’t be enough to satisfy critics. We expect Abe to pressure the BoJ to print more yen in the months to come, driving down the value of the currency even more, and adding to the currency wars that are raging around the globe.
The problem is that this strategy is wearing thin with consumers, who are paying more for imported goods like food and energy, but are not enjoying higher wages.
What it means — Same story, different month. Home construction still is not providing a big boost to the economy. Even though the National Association of Realtors assures us that the big boost in home buying, and therefore home construction, is just around the corner, it never seems to arrive. The usual suspects are to blame — stagnant wages, consumers with unsettled futures, and student loans weighing on young families that would normally be purchasing homes.
What makes this data point more relevant today than in previous reports is that with energy prices falling, our economy can’t rely on the energy sector to provide middle-income employment opportunities. With both energy and construction sidelined, there aren’t many sectors left that have the potential to provide this level of compensation to large numbers of workers. Our jobs market most likely will keep adding workers disproportionately to the lower rungs of income.
U.S. Industrial Production Up 0.2% in January, Capacity Utilization Unchanged at 79.4%… The industrial sector gained little ground last month, while the overall use of industrial capacity in the U.S. was flat from December.
What it means — The levels here aren’t very interesting, but the revisions to the December figures were notable. Industrial production in December was revised from 0.1% decline to drop of 0.3%. Capacity utilization, the proportion of productive output used, dropped from 79.7% to 79.4%. Manufacturing was reduced from 0.3% to 0.0%.
With the December numbers revised lower across the board and January numbers flat or barely higher, the U.S. industrial sector appears to be reaching a plateau. Given that so many U.S. companies sell products abroad, this isn’t surprising. The tepid growth in the U.S. is the envy of the developed world. As other nations struggle to keep their economies at least flat if not growing, they don’t need or want as much stuff from us. Another factor is the strong dollar, which makes American exports less affordable.
Greece and European Union Officials Trade Accusations… Greece delivered its plan for extending emergency financing from the troika, which European officials immediately rejected.
What it means — At time of writing, there was no deal. Without more funding, Greece will run out of money by the end of the month. Social payments, including pensions, will cease. The brinkmanship continues, but there is another week for the two sides to come together.
While Syriza won the recent election, they still only pulled a bit more than 35% of the vote. Eighty percent of Greeks want to stay in the euro. The new Greek leaders should keep this in mind as they negotiate with the euro zone leaders.
Chinese New Home Prices Down 5.0% Year-Over-Year, the Largest Drop on Record… New home prices fell last month in 64 of the 70 cities that are tracked. The annual drop of 5.0% comes after a 4.3% decline in December, so the drop is accelerating.
What it means — In a country where home buyers typically put down 50%, or even pay 100% cash for their homes, a drop of 5% might sound like small potatoes. The size of the decline is not the problem. It’s the fact that prices fell at all. It is only in the last 30 years that the Chinese have been allowed to own real estate.
Except for the sharp drop and recovery in 2008 and 2009, property prices have consistently moved higher. The last year proves that, even without a financial crisis, prices can fall. This is very important since 74% of household wealth in China is invested in real estate.
If consumers believe the trend in home prices has reversed or even flattened, they’ll put their dollars somewhere else, which will significantly slow the property market in China, causing a drop in domestic investment, complete with falling employment and lower commodity prices. This is exactly what we have been watching for and writing about for the last couple of years. If the slide in Chinese property prices picks up speed, this could be one of the catalysts that takes down the global economy.
Japanese GDP Growth Disappoints, Up 2.2%, Missing Expectations of 3.7%… Slow GDP growth in the fourth quarter of 2014 followed negative reports in the second and third quarters. For the year Japanese GDP was flat.
What it means — The last sentence is the most important. With the Bank of Japan (BoJ) printing yen by the bucket, and private companies awash in profits due to the weakening currency, the country still couldn’t manage to post positive GDP numbers for 2014.
The economic policies of Prime Minister Shinzo Abe have failed.
Even if the country does manage to grow modestly in the first quarter of this year, it won’t be enough to satisfy critics. We expect Abe to pressure the BoJ to print more yen in the months to come, driving down the value of the currency even more, and adding to the currency wars that are raging around the globe.
The problem is that this strategy is wearing thin with consumers, who are paying more for imported goods like food and energy, but are not enjoying higher wages.
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