by Calculated Risk on 12/20/2024 12:04:00 PM

At the end of each year, I post Ten Economic Questions for the following year (2024). I followed up with a brief post on each question. Here is review (we don't have all data yet, but enough).  I've linked to my posts from the beginning of the year, with a brief excerpt and a few comments.

I don't have a crystal ball, but I think it helps to outline what I think will happen - and understand - and change my mind, when the outlook is wrong.  As an example, when the pandemic hit, I switched from being mostly positive on the economy to calling a recession in early March 2020.

Here were my questions for 2024 (posted in December 2023).  The analysis for the housing related questions were posted in the newsletter, and the other questions on this blog.

10) Question #10 for 2024: Will inventory increase further in 2024?

"The bottom line is inventory will probably increase year-over-year in 2024. However, it seems unlikely that inventory will be back up to the 2019 levels."

That was correct.

Here is a graph from Altos Research showing active single-family inventory through December 16, 2023.

The red line is for 2024.  The black line is for 2019.  Note that inventory is up from the record low for the same week in 2021, and up 26% compared to the same week last year.

However, inventory is still below pre-pandemic normal levels. 

9) Question #9 for 2024: What will happen with house prices in 2024?

"I don’t expect inventory to reach 2019 levels but based on the recent increase in inventory maybe more than half the gap between 2019 and 2023 levels will close in 2024. If existing home sales remain sluggish, we could see months-of-supply back to 2017 - 2019 levels.

That would likely put price increases in the 3% to 4% range in 2024. I don’t expect either a crash in prices or a surge in prices. "

That was correct.

As of September, the National Case-Shiller index SA was up 3.9% year-over-year. (Case-Shiller for October will be released December 31st).

The FHFA index was up 4.3% YoY in October, and the Freddie Mac index was up 3.7%. 

 The ICE HPI was up 3.0% in November.

And no crash or surge in house prices in 2024.  

8) Question #8 for 2024: How much will Residential investment change in 2024? How about housing starts and new home sales in 2024?

"My guess is multi-family starts will decline further in 2024, likely down 25% or so year-over-year. Single family starts will likely be mostly unchanged year-over-year, putting total starts down close to 10%. I expect New Home sales to be up around 5% YoY."

This was close.

This graph shows single and multi-family housing starts since 2000.

As of November, single family starts were up 7.2% year-to-date (YTD) compared to the same period in 2023.  Single family starts were a little stronger than expected.

Multi-family starts were down 28.9% YTD (pretty close!).

Total starts were down 4.3% YTD.


The next graph shows new home sales as of October (November sales will be released next week).

New home sales were up 2.1% YTD in October. 

Note that sales in October were impacted by the hurricanes, and I expect some bounce back in November.

That will likely put YTD sales even closer to my guess.

7) Question #7 for 2024: How much will wages increase in 2024?

"Clearly wage growth is slowing and I expect to see some further decreases in both the Average hourly earnings from the CES, and in the Atlanta Fed Wage Tracker. My sense is nominal wages will increase close to 3.5% YoY in 2024 according to the CES. "

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Excluding the pandemic spike, wage growth peaked at 5.9% YoY in March 2022 and declined to 3.6% in July 2024.  However, wages have ticked up to 4.0% YoY in November.

6) Question #6 for 2024: What will the Fed Funds rate be in December 2024?

"My guess is there will be around 5 rate cuts in 2024 ... I also expect the FOMC to start discussing slowing balance sheet runoff late in the year."

There were 4 rate cuts in 2024 with the Fed Funds rate target range at 4-1/4 to 4-1/2 percent in December 2024. There has also been some discussion of slowing balance sheet runoff.

5) Question #5 for 2024: What will the YoY core inflation rate be in December 2024?

"My guess is core PCE inflation (year-over-year) will decrease in 2024 (from the current 3.2%), and I think core PCE inflation will be close to the Fed's target by Q4 2024."

According to the November Personal Income and Outlays report released this morning, the November PCE price index increased 2.4 percent year-over-year, and the November PCE price index, excluding food and energy, increased 2.8 percent year-over-year. Inflation declined, but not as much as expected.

4) Question #4 for 2024: What will the participation rate be in December 2024?

"There are probably a few more people that will return to the workforce in 2024, pushing up the participation rate. However, demographics will be pushing the rate down. So, my guess is the participation rate will decline slightly in 2024 to around 62.3%"

My guess was close.

The Labor Force Participation Rate decreased to 62.5% in November from 62.6% in October.

This is down from the post pandemic peak of 62.8%.

Demographics (retiring baby boomers) is pushing down the rate.

3) Question #3 for 2024: What will the unemployment rate be in December 2024?

"Depending on the estimate for the participation rate and job growth (next question), my guess is the unemployment rate will remain in the mid-to-high 3% range in December 2024. (Lower than the FOMC forecast of 4.0% to 4.2%)."

The unemployment rate was at 4.2% in November (The FOMC projections beat me on this one).

2) Question #2 for 2024: How much will job growth slow in 2024? Or will the economy lose jobs?

"So, my forecast is for gains of around 1.0 million to 1.5 million jobs in 2024. This would be another solid year for employment gains given current demographics."

This graph shows the jobs added per month since January 2021.

Job growth slowed from 3.0 million in 2023 but was still strong in 2024.

Through November the economy has added 1.98 million jobs in 2024, above my guess.

1) Question #1 for 2024: How much will the economy grow in 2024? Will there be a recession in 2024?

"The FOMC is expecting growth of 1.2% to 1.7% Q4-over-Q4 in 2024. ... My sense is growth will be sluggish in 2024, and the economy will avoid recession. ...

So, my guess is that real GDP growth will be positive in the 1% to 2% range in 2024.

I was correct about no recession, but growth will likely be closer to 2.5% or so in 2024.

For the most part, the economy evolved as expected in 2024. Economic (GDP) and employment growth outperformed my guesses.

by Calculated Risk on 12/20/2024 10:52:00 AM

From Goldman:

Following this morning’s data, we left our Q4 GDP tracking estimate unchanged at 2.4% (quarter-over-quarter annualized) and our Q4 domestic final sales forecast unchanged at +2.3% [Dec 20th estimate]
emphasis added

And from the Atlanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 3.1 percent on December 20, down from 3.2 percent on December 18. After recent releases from the US Bureau of Economic Analysis and the National Association of Realtors, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 3.3 percent and 1.3 percent, respectively, to 3.2 percent and 1.2 percent. [Dec 20th estimate]

by Calculated Risk on 12/20/2024 09:09:00 AM

Here is a graph of the year-over-year change in shelter from the CPI report and housing from the PCE report this morning, both through November 2024.

CPI Shelter was up 4.8% year-over-year in November, down from 4.9% in October, and down from the cycle peak of 8.2% in March 2023.

Housing (PCE) was up 4.8% YoY in November, down from 5.0% in October, and down from the cycle peak of 8.3% in April 2023.

Since asking rents are mostly flat year-over-year, these measures will slowly continue to decline over the next year.

The second graph shows PCE prices, Core PCE prices and Core ex-housing over the last 3 months (annualized):

Key measures are slightly below the Fed's target on a 3-month basis. Note: There appears to be some residual seasonality distorting PCE prices in Q1, especially in January.

3-month annualized change:

PCE Price Index: 2.1%
Core PCE Prices: 2.5%
Core minus Housing: 2.3%

by Calculated Risk on 12/20/2024 08:30:00 AM

The BEA released the Personal Income and Outlays report for November:

Personal income increased $71.1 billion (0.3 percent at a monthly rate) in November, according to estimates released today by the U.S. Bureau of Economic Analysis. Disposable personal income (DPI), personal income less personal current taxes, increased $61.1 billion (0.3 percent) and personal consumption expenditures (PCE) increased $81.3 billion (0.4 percent).

The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent. Real DPI increased 0.2 percent in November and real PCE increased 0.3 percent; goods increased 0.7 percent and services increased 0.1 percent.
emphasis added

The November PCE price index increased 2.4 percent year-over-year (YoY), up from 2.3 percent YoY in October, and down from the recent peak of 7.2 percent in June 2022.

The PCE price index, excluding food and energy, increased 2.8 percent YoY, unchanged from 2.8 percent in October, and down from the recent peak of 5.6 percent in February 2022.

The following graph shows real Personal Consumption Expenditures (PCE) through November 2024 (2017 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

Personal income and PCE were below expectations.

Inflation was below expectations.

Using the two-month method to estimate Q4 real PCE growth, real PCE was increasing at a 3.3% annual rate in Q4 2024. (Using the mid-month method, real PCE was increasing at 3.8%).  This suggests solid PCE growth in Q4.

by Calculated Risk on 12/19/2024 07:55:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Friday:
• At 8:30 AM ET, Personal Income and Outlays for November. The consensus is for a 0.4% increase in personal income, and for a 0.5% increase in personal spending. And for the PCE price index to increase 0.2%, and the Core PCE price index to increase 0.2%.  PCE prices are expected to be up 2.5% YoY, and core PCE prices up 2.9% YoY.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for December).

• Also at 10:00 AM, State Employment and Unemployment (Monthly) for November 2024

by Calculated Risk on 12/19/2024 04:45:00 PM

What this means: On a weekly basis, Realtor.com reports the year-over-year change in active inventory and new listings. On a monthly basis, they report total inventory. For November, Realtor.com reported inventory was up 26.2% YoY, but still down 21.5% compared to the 2017 to 2019 same month levels. 

 Now - on a weekly basis - inventory is up 23.4% YoY.

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report: Weekly Housing Trends View—Data for Week Ending Dec. 14, 2024

• Active inventory increased, with for-sale homes 23.4% above year-ago levels

For the 58th consecutive week, the number of homes for sale has increased compared with the same time last year. However, this week’s growth was the slowest since March 2024. As the mortgage rates remain close to 7%, the combination of sluggish listing activity and muted buyer demand has led to a slowdown in inventory growth. This increase should help lead to a more balanced housing market heading into 2025.

• New listings—a measure of sellers putting homes up for sale—increased 7.9%

The past two weeks have brought the highest combined two-week increase in new listings since April, reflecting a rising desire of existing home sellers to sell their home and, in many cases, also buy a new one. This late-season increase could lead to a noticeable but modest increase in housing market activity throughout the remainder of the year.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory was up year-over-year for the 58th consecutive week.  

New listings remain below typical pre-pandemic levels.

by Calculated Risk on 12/19/2024 02:03:00 PM

From the Census Bureau: Net International Migration Drives Highest U.S. Population Growth in Decades

The U.S. population grew by nearly 1.0% between 2023 and 2024, according to the new Vintage 2024 population estimates released today by the U.S. Census Bureau.

As the nation’s population surpasses 340 million, this is the fastest annual population growth the nation has seen since 2001 — a notable increase from the record low growth rate of 0.2% in 2021. The growth was primarily driven by rising net international migration.
...
Natural increase also contributed to the population growth, as births outnumbered deaths by nearly 519,000 between 2023 and 2024. This marks an increase from the historic low in 2021 when natural increase was just over 146,000, but it was still well below the highs in prior decades.

by Calculated Risk on 12/19/2024 10:50:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: NAR: Existing-Home Sales Increased to 4.15 million SAAR in November

Excerpt:

The sales rate was above the consensus forecast (but close to housing economist Tom Lawler’s estimate).
...
Sales Year-over-Year and Not Seasonally Adjusted (NSA)

The fourth graph shows existing home sales by month for 2023 and 2024.

Sales increased 6.1% year-over-year compared to November 2023.
...
On an NSA basis, sales are down 1.5% year-to-date compared to 2023.

by Calculated Risk on 12/19/2024 10:00:00 AM

From the NAR: Existing-Home Sales Elevated 4.8% in November; Post Strongest Year-Over-Year Increase Since June 2021

Existing-home sales grew in November, according to the National Association of Realtors®. Sales advanced in three major U.S. regions and remained steady in the West. Year-over-year, sales climbed in all four regions.

Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – improved 4.8% from October to a seasonally adjusted annual rate of 4.15 million in November. Year-over-year, sales bounced 6.1% (up from 3.91 million in November 2023).
...
Total housing inventory registered at the end of November was 1.33 million units, down 2.9% from October but up 17.7% from one year ago (1.13 million). Unsold inventory sits at a 3.8-month supply at the current sales pace, down from 4.2 months in October but up from 3.5 months in November 2023.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1994.

Sales in November (4.15 million SAAR) were up 4.8% from the previous month and were 6.1% above the November 2023 sales rate.  This was the second year-over-year increase since July 2021.  Last month was the first.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.33 million in November from 1.37 million the previous month.

Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was up 17.7% year-over-year (blue) in November compared to November 2023.

Months of supply (red) decreased to 3.8 months in November from 4.2 months the previous month.

The sales rate was above the consensus forecast.  I'll have more later. 

by Calculated Risk on 12/19/2024 08:37:00 AM

From the BEA: Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, Third Quarter 2024

Real gross domestic product (GDP) increased at an annual rate of 3.1 percent in the third quarter of 2024, according to the "third" estimate released by the U.S. Bureau of Economic Analysis. In the second quarter, real GDP increased 3.0 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.8 percent. The update primarily reflected upward revisions to exports and consumer spending that were partly offset by a downward revision to private inventory investment. Imports, which are a subtraction in the calculation of GDP, were revised up.
emphasis added

Here is a Comparison of Third and Second Estimates. PCE growth was revised up from 3.5% to 3.7%. Residential investment was revised up from -5.0% to -4.3%.