Three macroeconomic reports emerged last week--each sent conflicting directional signals for production home building company strategists. Question now is, taken together, what thoughts and what actions do they suggest for those trying to plan ahead in a way that accounts for the worst scenarios but also readies an organization to lead at fast-surfacing opportunity.
Tuesday, the U.S. Census' Housing Vacancy Survey supplement to the Current Population Survey came out with word that household formations had plummeted for the third quarter to 380,000, a 30-month low.
Thursday morning the Bureau of Economic Analysis released its preliminary report on third-quarter GDP, which exceeded expectations marginally, but caused worry on the personal consumption front.
Finally, on Friday morning, a jobs and unemployment report printed that blew through consensus expectations, but again raised more questions than it answered.
So, after the GDP numbers came to light, and certainly after Friday morning's jobs data release, skeptics kicked up a storm about how the household formations number from the Housing Vacancy Survey must be wrong.
Here's guest poster Tom Lawler on Calculated Risk with analysis that explains how Housing Vacancy Survey data conflict dramatically with the same agency's from the CPS Annual Social and Economic Supplement, taken in March of each year. Which suggests that both data sets can not be correct, and therefore, the reliability of each is questionable. Lawler concludes:
"While both the CPS/HVS and the CPS/ASEC estimates are “controlled” to select Census 2010 results – one for the number of housing units, and the other to the number of people -- neither survey’s results are “controlled” to critical Census 2010 estimates such as the number of households (or headship rates), homeownership rates, vacancy rates, etc.--making both of limited value to housing analysts and policymakers."
The upshot of the household formations data release was a lot of anxiety among builders and developers we talked with last week. Anecdotally, they'd had been hyper-vigilant to the adult-kids-in-their-parents'-basements set whom the economy hadn't liberated with good-enough jobs. Doubled-up for-rent and in their parents' homes behavior well into their late-20s and early-30s may be regarded as "pent-up demand" for only so long.
Fact is, almost everybody knows lots of adult kids whose move into their own households has been constrained by the lack of a decent job and the presence of a student loan payment to keep up. So, it's no surprise that the heebie jeebies about what most builders hopefully refer to as "the 90 day pause" in the market correlate to a drop-off in household formations at a fairly dramatic level. Still, as Lawler says, it's hard to fathom that the number can have dropped so low, when the same agency's data shows a huge discrepancy to the upside on the yearly numbers.
As far as the positives in the GDP and the jobs data, they're good news with a lot of bad news baggage. Even the good news part of the good news might be considered bad news for builders in the near term, as it suggests economic healing is nearing a point to signal a readiness to start tapering back on monetary accommodations by the Federal Reserve.
A GDP number that shows some spark is fine as far as it goes, but peel a thin layer of the onion back, and one finds that the growth has come on the back of inventory growth rather than confidence-inspired consumer consumption. Here's the Wall Street Journal staffer Kathleen Madigan's take(paywall):
... A large share of third-quarter economic activity came from inventory building, which contributed 0.83 percentage points to GDP growth. Real final sales—GDP less inventories—grew a more modest 2.0%. Consumer spending slowed last quarter and businesses cut back on their investment on equipment."
Finally, jobs numbers, which show that while figures themselves may be up, the result of the numbers being up may be the equivalent of running to stay in place. Again, Wall Street Journal staffer Neil Shah gives the data a dose of curb-your-enthusiasm:
Employers added 204,000 jobs in October, the Labor Department said Friday, and numbers for August and September were revised up by a total of 60,000 jobs. The problem is nearly 100,000 of those new jobs in October came from just new sectors of the economy—restaurants and retail—which tend to pay workers less.
Thing is, taken alone, the direction and strength of the jobs uptick spontaneously combusted into talk that a Fed taper was going to be moved up from later to sooner on the quantitative "squeezing" dial. A deep chill reached arterially through home building's public company peer group.
So, household formations bad news triangulated with GDP good news, and jobs good news, whose flip-side was interest rate bad news, which bodes ill for the next round of household formations news.
So stay tuned.