Not Just Numbers

$16,187,000,000,000 +   National Debt

                                  

           7,000,000,000  +  Total world population

Other numbers to remember:

20,000,000     Local, state, federal government employees

22,000,000     Total unemployed

47,000,000     Food stamp recipients

Excess Reserves

-          This is the amount of money that banks must keep on hand due to capital requirements, nervousness in the market and the inability to lend safely.

-          Traditional amount has been an average of $2billion

-          On 9/11the reserves went up but came down a week later

-          NOW the reserves are at $1.48 TRILLION from a high of $1.6 TRILLION

No wonder banks are not lending.  

-          As the excess reserves decrease, this will signal inflation and a stronger economy. Inflation will signal higher interest rates --- how high will be the unknown.

-          The St. Louis Fed has great charts and graphs illustrating all of the key issues.

Consumer Confidence

The third data fact worth watching is the Consumer Confidence Index reported monthly.

The Consumer Confidence Index, or CCI, is a monthly release from the Conference Board. It dates back to 1967. The CCI is designed to assess the overall confidence, relative financial health and spending power of the US average consumer.

- Lowest level was in Sept ’08 at 25 when Lehman and Bear Stearns went out

- Looking for a Consumer Confidence index between 90-100

 

It is widely known that the US economy is driven by the consumer (70%) rather than anything we manufacture! The following chart shows the CCI for the previous recessions. It would seem that consumers continue to view this economic climate similar to a recession.

I will confess that the 1980 - 1982 recession was extremely difficult for the housing industry and the worst economic period I personally faced until NOW. Pray for the best and plan for the worst.

Watch the Trend of the GDP

The next thing to watch is the TREND of the GDP. I post the results each month as it is released by the Bureau of Labor Statistics (BSI). This is the best way to assess how the economy is doing. The problem is that the statistics are a quarter behind reality. As an example, at the end of October, BSI will release the first estimate for the 3rd quarter.

The 2nd quarter GDP was 1.3%. This is trending down from 2011.

- 2012 original estimate was between 2% - 2.5% but estimates have been moved to 1.8%

- Economy will continue to move forward although at a slow pace due to overall lack of demand

- A series of mini financial crisis will impact this number

- Fiscal Cliff – increased taxes and decreased government spending – tax increases in social security, Bush tax cuts expire and AMT patch = $330b out of the consumers pocket which equals 2% of overall GDP. This alone would put us back into recession.

- Accounting for the changes in the tax code in 2013, GDP is predicted at 1.9% Q1, 1.5% Q2, 1.6% Q3 and 1.6% Q4

- The real estate business is one of the best leading indicators - we are usually ahead of the curve in terms of what is happening in the economy – up 29% in sales and 26% in closings YTD

Although real estate has been doing better over the past 4-6 months, in my opinion, this is a false sense of a recovery. It is a supply issue – resales and new homes. For several years, it has been a buyer’s market. We are shifting very quickly to a seller’s market which may result in seller’s accepting house sale contingencies, again.

Remember, as housing goes so goes the economy. To have a thriving economy, we need to have housing starts be at the 1,200,000 level per year.

Housing Starts                          2008                      560,000

                                                2009                      581,000

                                                2010                      539,000

                                                2011                      697,000

                                                2012                      720,000 forecast

                                                2013                      850,000 forecast

Source: NAHB   This represents 6-yrs of pent-up demand. Because of the lack of supply and the increase in demand, prices will start to rise in the 4th quarter of 2012. As prices rise, it would not be out of the question for interest rates to rise. Yes, the Fed said that they would keep rates low through 2015. But moving the mortgage interest rates higher to say 4.5% --- the rates would still be at historic lows. This will of course dampen any housing recovery and your buying power will decrease.

Low inventory, high demand, increase in prices, higher cost of money, lack of a labor force and material shortages will dampen any housing recovery. Housing is still upside down but now for different reasons.

Focus on the Issues

It is now time to focus on the issues that impact you, me, all of US. To stay informed on how the economy is really doing and not listen to the talking heads, this week I will present those issues which we should watch on a weekly and monthly basis.

Look for the Employment Numbers that are published on a monthly basis. Look at actual numbers of people hired not at the % - due to the number of people coming off unemployment. Forget about the unemployment rate. The percentage is relative to the data used.

What to look for in an improving economy:

- 180k-200k new jobs on a national level need to be added each month --- Remember that about 90,000 jobs per month have to be added just to keep up with population

- From the Bureau of Labor Statistics --- Since the beginning of the year (2012), job growth has averaged 146,000 per month, compared with an average gain of 153,000 in 2011. The trend is down.

- Since reaching an employment trough in February 2010, the private sector has added 4.7 million jobs!!!!!

Except the economy LOST 8,700,000 jobs from 12/07 – 2/10

- To put this number into perspective, divide 4,700,000 jobs added by 32 months = 146,875 jobs added per month (avg). This is below what is needed for an improving economy. I am not an economist --- do your own homework.

As you know, I believe as housing goes so goes the economy. So I want to relate each benchmark to housing – the best that I can.

- From the Bureau of Labor Statistics:

- Construction employment was essentially unchanged in September (+5,000) for the fourth consecutive month.

- Since February 2010, employment in the construction industry has shown essentially no net change. (this is a broad industry but would include housing construction).

Based on the above analysis, the economy is NOT improving and may very well be heading toward that fiscal cliff at the end of this year. If the politicians don’t do something, we will head into another recession if not something worse. Remember, many Americans are hanging on by their finger nails waiting for the economy to improve. If we head into another recession, we will be entering into a period of unsettling times.

Pray for the best and plan for the worst.

The Vice President - One Class Act!

Proverbs 29:9
If a wise man goes to court with a fool, the fool rages and scoffs, and there is no peace.

WAKE UP AMERICA!

Charlotte Home Sales over the Last 3-yrs

It is clear to me that home prices in Charlotte and on the rise due to the lack of inventory (blog post on October 3 rd) and the increase in homes closed. If buyers and sellers are also waiting until the election is decided to make a move they may change the typically slow holiday months for real estate into an active selling season. Or, if they wait until the new year, it could be a balanced market again --- buyers and sellers without a clear negotiating advantage.

I heard yesterday that a local regional builder is raising their prices on ALL of their models at the end of this month. A bold move. Although I don't know the reason for the increase in prices but my guess is labor and material prices are on the rise! Or they are riding the price movement of resales --- a risky move. However, it may cause buyers to jump of the fence and buy. Still a risky move.