Economic Update (Monday, November 29, 2021)
Economic Update
(Monday, November 29, 2021)
U.S. weekly jobless claims plunge to lowest level since 1969.?New filings for jobless benefit plunged by 71,000 to 199,000 in the seven days ended Nov. 20, the government reports. This is the lowest level of initial claims since November 1969.?Economists polled by The Wall Street Journal had estimated initial jobless claims would total a seasonally adjusted 260,000.??Unemployment filings have been steadily moving toward pre-crisis lows, when they were in the low 200,000s. They totaled as much as 900,000 a week at the start of the year.?The number of people already collecting state jobless benefits, meanwhile, fell by 60,000 to 2.05 million. These so-called continuing claims are also at a pandemic low.?A few economists were expecting a big drop in claims based on seasonal adjustment factors. They don’t think the low level will last.?But I disagree.?So, this week let’s be disagreeable, contrarian, and get down into the weeds…
Retail Sales Rose 1.7% in October.?Retail sales continued to show strength in October, beating consensus expectations and rising 1.7% for the month.?Some of the gain was due to inflation, but not all of it: consumer prices rose 0.9% in October, not 1.7%.?The sales gains were broad, with eleven of thirteen major categories up in October, led by non-store retailers, autos, and gas stations (more miles driven and consumers paying much higher prices at the pump). Overall sales are up a robust 16.3% from a year ago!?Another way to look at it is that sales are up 21.4% versus February 2020, which was pre-COVID.?"Core" sales, (which exclude the most volatile categories of autos, building materials, and gas station sales), rose 1.3% in October, are up 15.4% from a year ago, and up 20.7% versus February 2020.?In other words, due to the massive increase in government transfer payments (in response to COVID), retail sales are running much hotter than they would have had COVID never happened, even as the level of output (real GDP) is still running lower than it would have been in the absence of COVID.?But it has not been an even recovery for all major categories, though.?For instance, non-store retailers (39.8%) and sporting goods stores ( 39.5%) have grown significantly faster than overall retail sales since February 2020.?The last category of sales to get above February 2020 levels was restaurants & bars, which finally moved into the green in April and are now up 9.4% from 20 months ago.?Looking ahead, given that overall retail sales are still far above the pre-COVID trend, expect a modest trend decline in the year ahead.?However, as long as policymakers don't panic again about COVID, expect sales at restaurants & bars to buck that trend and move higher, along with sales of services not counted by the retail trade report, as America gets back toward normal.?In the months ahead, the path of retail sales will be a battle between a number of opposing factors.?Rising wages, jobs, and inflation will all be tailwinds for retail sales, while the waning of the temporary and artificial boost from "stimulus" checks along with the end to overly excessive jobless benefits will be headwinds.?
U.S. Consumer Spending Sizzles in October.?Americans are paying higher consumer prices due to surging inflation, but they are also buying plenty of goods and services to underpin a U.S. economy recovery.?Consumer spending climbed 1.3% last month, the government reports. Americans spent more on new cars and travel-related services in October.?Higher prices accounted for about half the gain, however. ?Consumer spending rose a more modest but still strong 0.7% after factoring in inflation. High inflation is likely to persist at least until the middle of next year. A measure of inflation included in the spending report rose again in October to push the increase over the past year to a 31-year high of 5%.?Incomes rose 0.5% last month, but inflation more than offset the increase.?As you know, consumer spending is the main engine of our economy and it’s “purring” more loudly as the year winds down. Even higher prices have not deterred Americans from buying more goods and services.?How long can they keep it up with inflation rising so rapidly? That remains to be seen, but economists predict the U.S. will finish the year on a high note.?They point out that households built up huge savings during the pandemic and wages are also rising rapidly because of the tightest labor market in decades. So Americans still have plenty of money to spend.?One potential obstacle: Surging coronavirus cases in the North and Midwest. The virus could curb spending in large swaths of the country toward the end of the year if caseloads don’t start to fall soon.
New Home Sales Increased in October.?New home sales in October rose for the second month in a row. However large downward revisions to prior months means there wasn't much to celebrate in the report.?If September's sales pace was still at the original reading of 0.800 million, October's headline gain of 0.4% would have instead been a decline of 6.9%.?Despite those downward revisions, the pace of sales is still up 9.1% from the recent bottom in June 2021, returning to an upward trend and signaling that the housing market has found its footing after a series of weak reports earlier this year.?That said, sales are still well below the January peak of 993,000.?Why??Because of two main intertwined reasons: (1) a lack of supply of completed homes, plus (2) rapid price appreciation (versus pre-COVID levels).?The good news is that builders have been ramping up activity, with the total number of single-family homes under construction currently at the highest levels since 2007.?Ultimately, that added supply will facilitate more sales while slowing the pace of new home price appreciation.?In the meantime, buyers are still stuck dealing with very few options when it comes to completed homes. It's true that overall inventories have been rising recently and now sit at the highest level since 2008.?This has pushed up the months' supply (how long it would take to sell the current inventory at today's sales pace) to 6.3 from a record low reading of 3.5 in late 2020.?However, almost all of this inventory gain is from homes where construction has either not yet started or is still underway.?Doing a similar calculation with only completed homes on the market shows a months' supply of a meager 0.6, near the lowest level on record back to 1999!?The good news is that the inventory of completed homes has been rising recently after nearly a year straight of declines.?While it's too early to say if this represents a new trend, there are reasons to be optimistic.?Builders have plenty of projects in the pipeline to meet demand and are likely to keep construction activity running on all cylinders for the foreseeable future.?As more homes become available, you can expect demand will remain strong and help boost sales later in 2021 and beyond.?
More Homes Are Being Built as Rentals. Home builders and other real estate companies are increasingly betting that would-be home buyers frustrated with a shortage of homes for sale and runaway prices will settle for renting their slice of the American dream.?Although individual homeowners and mom-and-pop investors still account for the vast majority of single-family rental homes, home builders have stepped up construction this year of new houses for rent. In the third quarter, builders broke ground on 16,000 single-family homes slated to become rentals. That’s the highest quarterly total of housing starts for built-to-rent homes going back to at least 1990, according to an analysis of U.S. census data by the National Assn. of Home Builders. The trade association’s analysis includes only homes that builders are going to hang on to and rent out. (That excludes homes being built to be sold to real estate investment trusts or investors planning to rent the properties.) Although those rental homes accounted for only 5.4% of all single-family housing starts in the third quarter, builders are doubling down on the build-to-rent model, with some already aiming to build more homes for rent for investors or corporate landlords eager to capitalize should potential homeowners continue to struggle to find affordable properties. Rising home prices and fierce competition for relatively few affordable homes for sale are stretching the limits of affordability for many would-be buyers. The median price of a previously occupied U.S. home jumped to $353,900 in October, a 13.1% increase from a year earlier, according to the National Assn. of Realtors. Homes sell within days of being put up for sale. These trends have been good news for landlords, however. Rents for U.S. single-family homes jumped 10.2% in October from a year earlier, according to real estate information company CoreLogic. (The firm excludes apartments from its single-family home rental data, though it includes condominium and townhome rentals.) CoreLogic expects rents to continue climbing through at least the end of this year, citing strong demand, low supply of homes for rent and a strengthening job market.
Homeless Veterans Still Struggling with Housing Options.?It’s unfortunate that after writing above about all the new homes being built, I need to discuss homelessness, but that’s the reality of the world we live in. A yearlong study of a group of homeless military veterans in Los Angeles found that few were able to obtain permanent housing over the course of the year despite living near the region’s major VA service center.?The project, led by researchers from the nonprofit RAND Corporation and the University of Southern California, found that although the veterans wanted to get off the streets, the housing options available to them frequently did not meet their desire for autonomy, safety, security and privacy.?Many study participants lacked confidence about their ability to obtain or retain housing, noting that their past experiences convinced them there were few options and little affordable housing available to veterans.?The report recommends expanding the quality of outreach efforts to engage homeless veterans, noting that the use of mobile services could be a key to connecting them to affordable housing and other services.?The study is the first to systematically track a group of veterans experiencing homelessness in Los Angeles to obtain information about their housing, health and service experiences to understand factors that help or hinder their entrance into stable housing.?The project followed a diverse group of 26 homeless veterans in West Los Angeles over 12 months, aiming to interview them monthly. Some of the veterans were recruited from a large homeless encampment adjacent to the campus of the West Los Angeles VA Medical Center, while the others lived just a few miles away.?Past mental and physical health problems were relatively common among the study participants, as was past victimization. More than half of the study group had been homeless for more than three years.
No, Madonna’s Former Mansion Is Not Owned by a Shaggy Dog. By now almost everyone has heard the rumor that a Miami mansion once owned by Madonna was being sold for $31.75 million by a filthy rich German dog.?As the?Associated Press—and many,?many other outlets —report, the princely pup named Gunther VI “lives in Madonna’s former master bedroom” and boasts a lineage which “dates back decades to when Gunther III inherited a multimillion-dollar trust from late owner German countess Karlotta Liebenstein when she died in 1992. Since then, a group of handlers have helped maintain a jet-setting lifestyle for a succession of dogs.”?Those minders supposedly included actual New York real estate human Ruthie Assouline, who was handling the massive listing, and which is a veritable king’s ransom compared to the $7.5 million kibbles Madonna got for it almost 20 years ago.?The 63-year-old icon took the news in stride, posting an Instagram story featuring a photo of herself looking cutely bemused?with her cheeks in her fists beside screencaps of articles about the allegedly moneyed mutt, captioned with “When you find out a dog is selling your old house for 3 times the amount you sold it for!” ?Fortunately, the?AP?included the mitigating line, “At least that’s what the handlers who manage the estate say.” Fortunately, because it turns out that one could be fined for leaving this story on the sidewalk.?“There is no dog sleeping in Madonna’s former bedroom,” a source tells?the?New York Post. “This is a totally made up story. The broker is talking nonsense. There is no dog. There never was a dog. The owner thought it would be a fun way to score a reality TV show. That’s it.”?According to the Posties, Assouline is indeed selling the Tuscan-style villa on Biscayne Bay for the stately sum, but her eccentric client is an Italian, not German, entrepreneur named Maurizio Mian, who is of Homo sapiens stock rather than canine.?That “history” was allegedly Mian’s own creation—a tall tale he’s been peddling since at least 2005, when he first picked up the Material Girl’s digs for that $7.5 million.?And if you don’t believe the?AP,?there’s the minor snag that all animals—no matter how many sweaters you stuff them into—are property, and therefore cannot own property in the U.S., though you can set up a trust to see to their care once you go to people heaven.?Confronted with his deceit, Mian told the?AP, “It’s complicated.”
The Griffith Park Merry-Go-Round Returns. As a polo player, horse owner, and horse lover, I’m very excited to announce that Griffith Park’s Merry-Go-Round has reopened!?Indeed, Diablo, the Unicorn, and the 66 other hand-carved merry-go-round horses are leaping again after their long COVID nap. While the carousel was closed, co-owner Rosemary West received an offer to ship the 95-year-old attraction out of the country, but she kept the reins firmly in L.A. She spent the time repainting the horses, some of which date to 1895 and feature real horsehair. She enlisted experts to tune the band organ and replace the tractor parts that power the eternal race.?“We need more people to come and have fun. If only we had 3-D glasses, people might feel like they’re going over Mount Rushmore,” West says of the vintage ride at vintage prices. “We need the $2 rides.” West loves hosting parties inside the historic dome, but alcohol is strictly prohibited. “Can you imagine someone getting woozy at 14 miles per hour?” she says.
Vendors Expo Returns!?Our world-famous super-duper "Real Estate Vendors Expo"?returns on Thursday night,?December 2, 2021 (one week earlier because of the holidays). The Vendor Expo will be open starting at 6:30 pm. We'll have a collection of 40+ of the finest vendors featuring real estate products and services you will need to become a successful investor. Our Vendor Expo will be held in the Grand Ballroom (2nd floor) in the Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission.?Self-parking across the street at the Luskin Conference Center ($10).?Please RSVP at www.LAREIC.com .
December General Meeting.?Our December holiday meeting will be held on Thursday night, December 2, 2021 (one week earlier because of the holidays).?And we have a very special guest to celebrate.?Jason Porter will be visiting us from Las Vegas, Nevada.?Jason is an author, investor, and the nation’s leading authority on tax deeds. If you want to buy properties cheaply and quickly, forget wholesaling.?You want to invest in tax deeds.?Don’t miss Jason’s presentation to learn how.?Our meeting will be held in the Grand Ballroom (2nd floor), Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission. Self-parking across the street at the Luskin Conference Center ($10). Please RSVP at www.LAREIC.com.?
This Week. Looking ahead, investors will closely watch Covid case counts around the world, particularly the newly discovered Omicron variant from South Africa. Beyond that, the ISM National Manufacturing Index will come out on Wednesday (12/3) and the ISM National Services Index on Friday (12/3). ?Also, the key Employment report will be released on Friday (12/3).?These figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month.
Weekly Changes:
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10-year Treasuries:????????????Rose??010 bps
Dow Jones Avg:??????????????????Rose??100 points
NASDAQ:?????????????????????????????Fell????300 points
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Calendar:
Wednesday (12/1):??????????????ISM Manufacturing
Friday (12/3):????????????????????????ISM Services
Friday (12/3):????????????????????????Employment
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For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club
310-409-8310
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