Wednesday, May 4, 2016

Decent news on houses and cars

 - by New Deal democrat

The two most leading parts of the consumer economy are houses and cars.  Both were going strong last year before wobbling in the last few months.  In the last week, however, we've received some positive news on both.

First, the existing negative stats about housing: new home sales, which peaked over a year ago, and permits, which peaked last June:

The good news we got last week was that real private residential investment rose as a share of GDP to a new post recession high (blue in the graph below).  This typically peaks over a year before the next recession. Single family permits (red) also remain positive:

Yesterday April motor vehicle sales returned to 17 million plus annualized (h/t Bill McBride):

Car sales tend to plateau during expansions and decline at least 6 months before a recession. Had car sales had another month under 17 million, that would have been a bad sign.  April returned us to the plateau range, so March might have been just a one-off exception.

I don't want to oversell either of these data points.  But they are positives that are consistent with the economy continuing to grow into next year.

From Bonddad:

I'd like to add the following point:

If there is any reason to be hopeful about the future, it's the continued strong housing numbers contained in GDP reports.  Economist Ed Leamer famously noted that housing is the business cycle.  Frankly, he's pretty much spot on with that statement.  A new home requires labor, raw materials, a large outlay for durable goods, and financing.  That means there are strong ripple effects from the new homes market.

Something to think about: despite low inventory, housing companies continue to build at a good but not exceptional pace, which is contributing to higher new home prices.  I had an email exchange with an analyst about this and asked if the homebuilding companies were deliberately keeping inventory low to get higher prices.  While he didn't have any proof, he did suspect that to be the case.  This is a hunch on my part; I have no proof.  It makes sense, especially when you consider the shellacking the home builders took as a result of the Great Recession.