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06/24/2011

Southeast housing update: Polls show Florida sees improved May home sales

A first glance of recent reports from southeastern housing contacts indicates that activity in the region improved on a year-over-year basis. The majority of builders reported that sales in May were flat to slightly up compared with a year earlier, and close to half of brokers reported sales increased.

May 2011 SE Home Sales vs Year Earlier

However, the May new home sales increase is over weak levels a year earlier; builders' comments indicate that sales remain at low levels. Southeastern broker reports may be a tad misleading as well. Reports from Florida brokers continued to be more upbeat than reports from other brokers in the region. As noted in last month's update, Florida contacts reported that cash sales of distressed homes continued to drive activity.

May 2011 Broker Homes Sales vs Year Earlier

Actually, sales activity in Florida aside, sales in the region appear to be more in line with recent national trends; the majority of brokers outside of Florida reported that sales in May were below the year-earlier level. Additionally, many noted that comparisons were expected to be down compared with last spring's sales when the federal housing stimulus was in play.

May 2011 Existing Home Sales

Most southeastern contacts reported that home inventory levels were flat to down compared with a year earlier. The majority of Florida brokers reported that inventories were down from a year earlier. A Jacksonville broker reported, "When a home comes on the market in our area that is priced at a great value, we are seeing multiple offers on a regular basis. We have actually seen some foreclosures with multiple offers sell for more than list price. There are fewer homes to show buyers especially in some of the better neighborhoods."

May 2011 SE Home Inventory vs Year Earlier

Contacts indicated more modest year-over-year home price declines in May.

May 2011 Home Price vs Year Ago

Looking ahead, most southeastern contacts anticipate home sales growth will weaken over the next several months.

May 2011 SE Home Sales Outlook vs Yr Earlier

Note: May poll results are based on responses from 89 residential brokers and 38 homebuilders and were collected June 6–15, 2011. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity while negative values indicate decreased activity.

By Whitney Mancuso, a senior analyst in the Atlanta Fed's research department

June 24, 2011 in Housing | Permalink

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06/21/2011

Studying the impact of tornadoes

On April 29, we wrote this about the devastation wrought by the late April tornadoes:

"Historically, the economic pattern of disasters sees initial losses as affected areas experience a slowdown in activity. The duration of the slowdown is tied to the extent of damage in economically important areas, and the duration of loss of services such as power and water. Recovery is driven largely by two factors—physical rebuilding of damaged and destroyed infrastructure and replacement of capital and household goods. As insurance checks are distributed and government aid is delivered, the economic recovery begins to take hold. Rebuilding infrastructure and replacement of capital and goods can stretch out several years, depending on the extent of the damage."


A recent study titled Preliminary Economic and Fiscal Impacts of the April 27, 2011 Tornadoes on Alabama by our friends Samuel Addy and Ahmad Ijaz at the University of Alabama's Center for Business and Economic Research reached a similar conclusion. Here are their overall conclusions:

"For the Alabama economy, the April 27 tornadoes will initially reduce GDP by $835 million to $1.3 billion or 0.5–0.7 percent, employment by about 5,600–13,200 jobs or 0.2–0.5 percent, state tax collections by $19.1–44.5 million or 0.2–0.5 percent, and local sales tax receipts by $4.4–10.2 million in 2011. Recovery activities (cleanup, assistance, and rebuilding) should pump $2.6 billion into the state economy in 2011 and $1.6–3.2 billion in 2012; state spending of about $80–100 million for cleanup in 2011 is expected. The federal government and insurance claims will fund most of the recovery. Cleanup and assistance should be completed in 2011, but rebuilding will continue into 2012."


The authors also note that the study does not take into account the "other very important quality of life factors such as lives lost, displacement, mental and physical health issues, and disruption to the lives of people who were not direct victims."

Driving home from Huntsville a couple of weeks ago, I went through the town of Rainsville, Ala. I was unaware of the tornado that ripped through that small town, but I'll never forget the aftermath. This past weekend I was in Ringgold, Ga., and saw similar damage. But the people of these towns are clearly resilient—cleanup was evident, and even some rebuilding was under way.

Photo of Michael ChrisztBy Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

June 21, 2011 in Alabama, Disaster recovery | Permalink

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06/15/2011

Beige Book: Only part of the story

The Federal Reserve released its latest Beige Book on June 8. The Beige Book is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by district and sector. An overall summary is prepared as well. Much attention is paid to the first sentence of the summary and the first sentence of each Bank's report because they give an overall take on conditions as reported.

The first sentence of the summary for the June 8 report reads:

"Reports from the twelve Federal Reserve Districts indicated that economic activity generally continued to expand since the last report, though a few Districts indicated some deceleration."


The following recounts the first sentence of each Reserve Bank's submission:

  • Boston: Many business contacts in the First District report improving economic conditions.
  • New York: The Second District's economy has continued to expand since the last report, though at a somewhat diminished pace.
  • Philadelphia: Business activity in the Third District has improved overall since the last Beige Book, although the pace has softened.
  • Cleveland: Business activity in the Fourth District continued to expand at a modest pace since our last report.
  • Richmond: Economic activity has been sending increasingly mixed signals since our last report.
  • Atlanta: Sixth District business contacts reported that economic activity moderated somewhat in April and May.
  • Chicago: Economic activity in the Seventh District expanded more slowly in April and May.
  • St. Louis: The economy of the Eighth District has continued to expand at a moderate pace since our previous report.
  • Minneapolis: Economic activity in the Ninth District grew steadily since the last report.
  • Kansas City: Growth in the Tenth District economy remained solid in May.
  • Dallas: The Eleventh District economy expanded at an accelerated pace over the past six weeks.
  • San Francisco: Twelfth District economic activity continued to expand at a moderate pace during the reporting period of late April through the end of May.


While the Beige Book is an important instrument in reviewing recent economic developments across Reserve Banks, it's important to understand the context of the individual Bank reports. (By context, I mean the broader picture of economic performance across regions.)

One way to do that is to look at overall economic activity in each region, and the Philadelphia Fed's State coincident indexes is a useful tool to do just that. The Philadelphia Fed produces monthly coincident indexes for each of the 50 states that combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state's index is set to the trend of its gross domestic product (GDP), so long-term growth in the state's index matches long-term growth in its GDP.

In the chart below I use the state indexes to ascertain the depth of the downturn and the extent of recovery experienced by each Federal Reserve District. I weighed each state's coincident index by average state GDP from 2006–10 to develop a coincident index for each Reserve Bank. (A technical note: Most Federal Reserve Districts cut across state boundaries. In these instances I estimate the portion of state GDP that falls within Reserve Bank Districts that share the state in question. It's a back-of-the-envelope calculation. I could look at metro area GDP to be more precise, but for the purposes of this exercise I'm comfortable with this more basic approach. In other words, I didn't have time to do it, but I'm pretty confident that the results would be similar).

In chart 1, I calculate the percent change from peak-to-trough and trough-to-present for each Reserve Bank's coincident indicator. The red bar represents that peak-to-trough percent change—another way to look at it is that the red bars represent the depth of the recession experienced by each Reserve District. The blue bar is the percent change since the trough—or the extent of recovery.

Coincident Economic Activity

The Atlanta Federal Reserve District experienced at 10.8 percent decline in its coincident indicator during the downturn and has seen a 1.9 percent increase since the trough. The Chicago Fed's measure fell by more than Atlanta's but has come back handsomely since the trough. (Bill Testa of the Chicago Fed wrote about the Seventh District's resurgence in a recent blog post.) You can see the other Reserve Banks' measures in the chart as well.

Chart 2 combines the two percent changes presented in chart 1:

Coincident Economic Activity Net Percentage Change

The Atlanta Fed's measure is by far the weakest. Dallas and Boston are close to zero, indicating that their respective coincident indicators are close to where they were before the downturn began. So when you read that the Atlanta Fed reported in its Beige Book that "business contacts reported that economic activity moderated somewhat," it is particularly troubling. We have a long way to go, and any pause simply makes the time it will take to get back to where we were even longer.

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

June 15, 2011 in Beige Book, Growth, Recovery | Permalink

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06/09/2011

In May, national PMI falls further than Southeast PMI

Like many analysts, I read last Wednesday's purchasing managers index (PMI) report with a dropped jaw. Manufacturing is supposed to be one (if not the) sector leading the recovery, but for those who haven't heard, the Institute for Supply Management's (ISM) PMI dropped 6.9 index points to reach 53.5 in May. This level indicates a slower rate of growth than April's reading of 60.4 points. Similar drops happened to slightly lesser degrees last month in the United Kingdom, the euro zone, and China. All of these PMIs are still above the 50-point benchmark indicating growth, so it's not quite time to sound the alarms just yet, but the U.S. PMI fell particularly hard from April to May. A one-month 6.9 point drop hasn't been seen since January 1984. Data for June, to be released on July 1 for the U.S. PMI and the other economies mentioned above, will help us see if this decline was a temporary phenomenon brought on by global supply chain disruptions resulting from the disaster in Japan, or if it indicates other headwinds the recovery is facing.

Silver linings in last week's report include:

  • 84 percent of contacts said their levels of new orders were better or the same as last month. Only 16 percent said their level of new orders had dropped from April to May. The new orders component of the PMI is the most forward-looking.
  • Though it dropped 4.5 index points from April to May, the employment component remained at 58.2 for May. It was the highest reading of any component used to calculate the PMI.
  • Produced from the same ISM survey but not included in the PMI's calculation, the prices index dropped 9 index points in May. This reading indicates that while manufacturers are still feeling rising price pressures for their inputs, their prices aren't rising as quickly as they were in April.


Back in the Sixth District...
Not surprisingly, the Southeast PMI, produced in conjunction with our friends at Kennesaw State's Econometric Center, also took a hit in May. However, it wasn't hit as hard as the national PMI. For the Atlanta Fed's Sixth District states (Georgia, Florida, Alabama, Tennessee, Mississippi, and Louisiana), the PMI fell 4.6 index points from April to reach 60.2 in May, a notably higher level than the national PMI. Here's a snapshot of how the Southeast PMI's components fared against the national PMI for May:

SE PMI Components

Why the difference?
Now and then, I get information from LexisNexis that includes a link to every story that focuses on manufacturing in the Sixth District. Of course, manufacturers in the Southeast face similar problems as manufacturers in other parts of the country (rising commodity prices have been a frequently mentioned problem recently), but here are a few regional headlines from May and early June that might explain why the Southeast PMI fared a bit better than the national one for May:

BBVA Compass: Manufacturing and exports to drive economy in 2011 (Birmingham Business Journal)
VF Jeanswear facility reopening in Holly Pond (Birmingham Business Journal)
Boeing avoids 70 planned job cuts in Macon this year (Macon Telegraph)
Yamaha boosting production in Newnan (Atlanta Business Chronicle)
Kia will expand its Ga. Plant (Autonews.com)
Nutriforce to build $5M plant (The South Florida Business Journal)
Firms increase local manufacturing capacity, add space and jobs (Orlando Business Journal)
Biovest builds cancer vaccine manufacturing site (Tampa Bay Business Journal)
Better days ahead for auto industry (Nashville Business Journal)
Chattanooga assembly plant is VW's prototype for the future (Autonews.com)
Carlisle Transportation locates in Franklin (Knoxville News-Sentinel)


More information about the Southeast PMI, including the exact wording of questions posed to participants, is available. Also, if you're a manufacturer in the Southeast, you can easily find the link on that page to sign up for the KSU-FRBA five-minute monthly survey, which entitles you to a full regional report as well as your state's report before its release to the press each month.

Photo of Mark CarterBy Mark Carter, an analyst in the Atlanta Fed's research department

June 9, 2011 in Manufacturing | Permalink

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06/07/2011

Regional housing activity remains in the doldrums

The decline in real estate activity is a significant contributor to the depth of the economic downturn here in the Southeast, and it is also a big part of why our national recovery has been slow. Dennis P. Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta, spoke to the National Funding Association's Council for Quality Growth in Atlanta in mid-May. The title of his remarks was "Real Estate and the Economic Recovery." With regard to the national picture, President Lockhart commented that

"The residential real estate market remains depressed. In my baseline forecast, the housing sector will contribute only modestly at best to economic growth this year and next."


The same can be said for housing's contribution to economic activity in the region as well. The theme regionally continues to be that housing is stabilizing at very low levels. Whitney Mancuso noted this in her May 17 SouthPoint post.

Looking again at President Lockhart's remarks, he noted that

"Home sales have not shown any clear trend of improvement since the end of the recession, except for a short pick-up during the period of the federal tax credit last year."


Looking at home sales in the states that have experienced the largest decline in housing activity—Florida and Georgia—the national picture is quite similar. Some areas of Florida have experienced a renewed upward trend in sales, and the chart below reflects this uptick. However, it is important to recognize that our Florida contacts in the real estate sector have told us that this is being driven largely by sales of distressed properties and by investors making block purchases of condos, in many cases with cash. Therefore, we hesitate to conclude that a sustainable recovery in home sales is under way.


Existing Home Sales


With regard to home prices, President Lockhart said that

"S&P/Case-Shiller data show that home prices are down more than 30 percent from their peak. While prices appeared to stabilize in 2009 and 2010, today prices appear to be under renewed pressure from the increasing supply of distressed properties that are selling at a deep discount."


The next chart shows that home prices in Miami and Tampa, two Florida metro areas that are components of the national S&P/Case-Shiller Index, are down much more than the national measure—50 percent in Miami and 46 percent in Tampa. They are down 26 percent in Atlanta, the only other southeastern metro area in the national composite measure. Importantly, as President Lockhart noted, prices have been drifting lower recently, although not at the pace of decline seen in 2007 and 2008. Nonetheless, we do not see a recovery in home prices in the Southeast to date.


Home Prices


Weak sales and drifting prices have resulted in a very slow pace of new construction activity in the region. The last chart shows that permits for new residential construction remain at historically low levels. Reflecting this data, our most recent survey of homebuilders noted that more than half of builders reported that sales and construction were down from weak levels a year earlier.


Permits for New Residential Construction


President Lockhart concluded his remarks by noting that

"Because of the factors I've discussed, I do not expect significant new residential construction nationally. Thus, it's unlikely that residential real estate will directly contribute much to GDP growth this year or next."


Unfortunately, the same can be said for the region's real estate outlook.

Photo of Michael ChrisztBy Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

June 7, 2011 in Housing, Outlook, Real Estate | Permalink

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Sadly, this is a sign of the times. I don't expect any bullish recovery in the next decade, considering what real estate have dug themselves into.

Posted by: ryan homes | 11/01/2011 at 09:59 PM

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