Healthy housing sector is economy’s ‘secret sauce’

The U.S. housing market continues to show signs of a robust 2017, a development that dovetails nicely with recent monthly surveys that show consumer confidence is at a high level.

The U.S. housing market continues to show signs of a robust 2017, a development that dovetails nicely with recent monthly surveys that show consumer confidence is at a high level.

"New-home sales are the secret sauce that helps make the economy grow," Chris Rupkey, chief economist at MUFG Union Bank in New York, told Reuters after the Commerce Department said last week that new-home sales rose 6.1 percent in February to a seasonally adjusted annual rate of 592,000 units.

“This will put some backbone in investment spending and make this economic expansion more sustainable," Rupkey added.

New-home sales were at a seven-month high, and they showed that a recent increase in borrowing costs had not significantly weakened the market. Job growth and pay gains are helping home buyers shrug off higher mortgage rates.

As Bloomberg reported, the new-home market is building on the momentum of 2016, which marked the strongest performance in nine years. Noting that new-home sales are tallied when contracts are signed, Bloomberg said they represent more timely information than reports on sales of existing homes.

The home resale market did not fare as well in February. Sales fell 3.7 percent to a seasonally adjusted annual rate of 5.48 million from 5.69 million in January, although the National Association of Realtors noted that February’s pace was 5.4 percent higher than it was in the same month last year.

Lawrence Yun, the association’s chief economist, said in a statement that too few properties for sale and weakening affordability conditions stifled buyers in most of the country.

"Realtors are reporting stronger foot traffic from a year ago, but low supply in the affordable price range continues to be the pest that's pushing up price growth and pressuring the budgets of prospective buyers," Yun said. "Newly listed properties are being snatched up quickly so far this year and leaving behind minimal choices for buyers trying to reach the market."

For perspective, February’s results follow a month when the pace of home resales had been the best in a decade.

"The underlying story is still very positive for the housing market," Jennifer Lee, a senior economist at BMO Capital Markets, told the Associated Press. "The February drop is just a blip in the overall trend."

People who buy homes also purchase plenty of other things, including refrigerators, washing machines and other major appliances, and a 1.7 percent increase in new orders for durable goods in February could be seen, in part, as a reflection of the housing market’s gains.

Orders also rose in January and the Commerce Department revised the increase for that month upward to 2.3 percent.

"The evidence is building that manufacturing activity is on something of an upswing and that capital spending on business equipment is poised to advance for the second consecutive quarter," John Ryding, chief economist at RDQ Economics in New York, told Reuters.

This week we will see whether consumers continue to show faith in the economy and their own future. Today The Conference Board will release its Consumer Confidence Index for March, and economists’ consensus forecast is for a reading of 113.5, only slightly below February’s 114.8, which was the highest since July of 2001.

On Friday, the University of Michigan will release its final Consumer Sentiment Index for March. The forecast is for a reading of 97.6, up from 96.3 at the end of February.

Also due Friday are reports from the Commerce Department on personal income and consumer spending for February. The forecast is for a 0.4 increase in personal income and a 0.2 percent increase in consumer spending, matching gains from the previous month.

On Thursday, economy watchers will see the revised reading from the Commerce Department on the nation’s gross domestic product for the 2016 fourth quarter. Expectations are that the final assessment will bump growth up slightly, to 2 percent, from the previous estimate of 1.9 percent.

The Federal Open Market Committee, the Federal Reserve’s policy-making panel, predicted at its mid-March meeting that the GDP will rise 2.1 percent this year and in 2018 — slow but steady growth.

"The simple message is — the economy is doing well," Fed chairman Janet Yellen said at a news conference that followed the panel’s two-day meeting. "The unemployment rate has moved way down, and many more people are feeling more optimistic about their labor prospects."

The Fed raised its benchmark short-term rate by a quarter of a percentage point at that meeting. USA Today said in a report that although the Fed’s outlook for the economy takes President Donald Trump’s proposed tax cuts and increased spending on infrastructure and the military into account, it is unclear whether or how quickly Congress will act on those plans.

Yellen said at the time of the meeting that the Fed had not seen hard evidence that improvements in business sentiment have changed companies’ spending decisions.

"Most of the business people I talked to also have been in a wait-and-see" mode, she said.

After the Republicans failed just last week to advance their health-care bill, the prospects for other aspects of the new president’s agenda appear muddled.

By contrast, the signals consumers have been sending have been much brighter and sharper.


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