The housing market is improving, according to vacancy figures released today by the government. Forget "bank-owned" and what Realtors call "inventory." The best way to look at the housing market is to see how many housing units are empty.
The "owned" category (most single family homes and condos) has been close to normal for some time, though there's certainly room for a couple more tenths of a percent decline.
The rental category took a big drop, which is positive for the housing industry, even if negative for home-hunters.
Both categories are important, as there is some mixing of people between the two categories.
Keep in mind that these are national averages; some local markets look very different. In addition, an excess supply of housing in Michigan does little to help fast-growing Sunbelt states.
Looking forward, I expect fairly good growth. In fact, we could have 20 percent stronger housing construction without overbuilding.
The Bureau of Labor Statistics just announced an increase in the number of job openings. Coming on the heels of last week's announcement that total employment had regained the level held before the recession, this is good news.
The rough rule of thumb is that a recession has two or more consecutive quarters of declining real GDP.* Why not just one quarter? We have a good example of why not just one quarter in the first quarter of 2014. The Bureau of Economic Analysis just revised its estimate of that quarter and it's negative: a decline of one percent from the preceding quarter.
Here's why this is NOT recessionary. Part of the decline was due to the bad weather in most of the country. Another part was an inventory swing. Business inventories had risen in the second half of last year, and such increases are often reversed in succeeding quarters. The two factors, weather and inventory adjustment, came together in one quarter, along with some weakness in foreign trade.
Looking forward, growth will be moderately better the rest of this year and decidedly better in 2015. More details on the outlook are on my Forbes.com article Economic Forecast 2014-2015.
* Data note: "real GDP" is the inflation-adjusted ("real") gross domestic product, the value of the goods and services produced in the United States. Data are available from the Bureau of Economic Analysis.
The Federal Reserve's latest survey of senior loan officers has some cheery news. I like to look at the percentage of banks tightening credit standards, versus easing credit standards. Keep in mind that banks are very hesitant to admit that they are easing. Any figure below 0 on the chart is good news for borrowers.
The survey also said that spreads (the difference between the interest rate charged to borrowers and the bank's own cost of funds) continues to narrow.
All businesses should have regular conversations with their bankers. Even you don't have bank credit, get to know a banker. It's vital to know if you could be bankable, and what your financial statements would have to look like.
Today's employment report was good. Lots of jobs added, and unemployment took a sizable drop. This isn't full employment yet, but the economy is clearly improving. The Wall Street Journal reported this morning one contractor having trouble finding carpenters; he may have to offer pay equal to what carpenters used to make before the recession. Talk about labor shortages (by folks who don't want to offer higher pay) is a typical sign of an economy nearing--but not yet at--full employment.
Business implications: with the economy strengthening, your current employees have more options. This is a great time to tell them how much you appreciate them. If your managerial basics have been lagging, you'll find out when your employees tell you to "take this job . . ."
Today's GDP report showed positive growth, by the least little bit possible, 0.1 percent. This is lousy, but it's not awful because some of the bad news is temporary.
The bad weather is part of the story, pushing down discretionary consumer spending (though pushing up spending on heating). Weather also impacted construction activity in much of the country. As I look out my window this morning, it's sunny and warm, so don't expect the weather problems to continue.
Inventories had inflated two quarters ago, and I've been looking for a correction. We had much lower inventory growth last quarter, contributing to the lousy GDP number. There's still room for even more inventory correction, but that should be over in another quarter.
Exports were worse than expected, not that we had been very hopeful here. Whether exports bounce back quickly depends on Europe, both financial issues and military issues, as well as on Asia. There's reason to believe Japan's economy is improving. If China's stops declerating, then future U.S. exports will be decent.
Business Implications: Don't hunker down just yet. This data report is probably worse than your business, and it should get mildly better in the next two quarters. But if your business is really in trouble, the economy probably won't improve enough to bail you out.
Forget what the Realtors call "inventory." Forget short-sales, bank-owned, and upside-down. The best measure of the housing market is how many units are empty.
A normal market has vacancy. Someone moves out of a house, and the next owner won't move in for a couple of weeks. Or a tenant moves out of an apartment, and the next tenant won't move in for a while. Apartments normally have a high vacancy, single family homes a low vacancy.
We made a lot of progress for a few years, but vacancy has leveled out a little higher than normal. Maybe not too much above normal to call this an average market. (Vacancy rates should average a little higher when interest rates are low, as they are now. It's the cost-of-inventory calculation that business students learn.)
Looking forward, I expect these vacancy rates to edge down a little further, more from increased population growth and household formation than from weak new construction.
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