Categories are graded from A thru F:
Economic Growth: D+
Trends were mixed this month, as a few metrics ticked up while the majority ticked down, resulting in a drop from C- last month to D+ this month for overall economic growth. The employment market improved once again this month, (albeit at a less than stellar pace) and Y-O-Y employment growth has now been positive for nine consecutive months.
Payrolls expanded by 54,000 in May, the smallest gain since September 2010 when 29,000 jobs were lost, while the unemployment rate increased marginally from 9% to 9.1%. The government continues to slash jobs (29,000 this month), and has now eliminated roughly 850,000 jobs over the last 12 months. In addition, the average length of unemployment increased to 39.7 weeks (a new record high), and the labor force percentage of those unemployed over 27 weeks rose to 4%. While still down Y-O-Y, mass layoffs have been trending up over the last several months, rising again this month.
The rate of inflation (both full and core) continued to increase this month, maintaining its steady upward trend that began in Spring/Summer 2010.
Leading Indicators: C
The leading indicators for the economy are mixed this month, with our overall grade for this subsection of indicators remaining at a C. While its growth rate fell this month, the ECRI Leading Index continues to rise on a Y-O-Y basis, now up for the sixth consecutive month. Other leading indicators such as the Small Business Optimism index and ISM Manufacturing/Non-Manufacturing Business Activity indices declined versus last month. Both the ISM Manufacturing and the Non-Manufacturing Business Activity indices have trended down since their recent peaks in February 2011, dropping 13% and 20%, respectively. Corporate profit growth has increased from last quarter, rising at a 19.9% clip Y-O-Y versus an 18.3% rate the previous quarter. Corporate profits now comprise 11.3% of total GDP, not far off the peak level of 12.3% in 3Q06
Stocks fell in the month of May for the four major indices we track, with sequential losses ranging from -1.3% for the Wilshire 5000 and NASDAQ to -1.9% for the Dow Jones. The indices have all improved significantly from one year ago, climbing between +23.5% (S&P 500) and +25.6% (NASDAQ) Y-O-Y. The S&P Homebuilding Index improved this month, rising 0.9% sequentially, though still down -2.3% Y-O-Y. Corporate bond spreads widened slightly this month to 185bps, while 10-year and 2-year Treasury rates fell for the month to fresh 2011 lows. Oil prices dropped 7.9% sequentially in May to $101, marking the third consecutive month of $100+ oil.
Affordability has rarely been better for entry-level buyers, and rarely worse for move-up and move-down buyers, who need to extract equity from their existing home. As such, we continue to grade our overall affordability indicator at a D+. Mortgage rates remain near historical lows, and home prices have dropped from unrealistic boom levels to entirely sustainable levels, with some markets like Las Vegas well into “overcorrection” territory. Our housing-cost-to-income ratio remains low, now at 23%, and our JBREC Affordability IndexTM stands at a remarkable 0.4, with zero being the best possible rating for affordability.
The median home price to income ratio has risen slightly to 2.92, which is less than the long-term historical norm and near a level conducive to market health. Affordability continues to be bolstered by historically low mortgage rates, which hit fresh 2011 lows in May. The 30-year fixed mortgage rate is currently at 4.6% and adjustable mortgage rates are at 3.11%, both down from last month. The Fed's overnight lending target rate remained at a range of 0.00% to 0.25%, which is the lowest level on record. The share of ARM applications is currently at 6.2%, which is still far below the peak level of 35% of total applications in early 2005.
Consumer Behavior: D+
Consumer behavior was mixed this month, with several metrics rising and others falling, resulting in an unchanged overall grade of D+. While all three major consumer indices rose last month, this month Consumer Confidence and Consumer Comfort decreased, while Consumer Sentiment ticked up. Due to rising inflation and a marginal increase in the unemployment rate, the misery index (unemployment + inflation) worsened this month, increasing to 12.16%; significantly higher than its historical average of 9.46% that dates back to 1948.
Existing Home Market: D+
The existing home market continues to remain weak, with most indicators still grading at poor levels and almost all of the indicators we track falling further this month. According to the National Association of Realtors, seasonally adjusted annual resale activity dropped to 5.05 million homes and median resale prices are down 5.4% YOY (though up marginally M/M). The S&P/Case-Shiller U.S. Index fell in 1Q11 to levels not seen since 2002, while the 10 and 20 market composite indices fell again this month. Existing home inventory rose along with months of supply, while the Pending Home Sales Index witnessed its 3rd worst M/M drop on record. The only bright spot this month is the Purchase Mortgage Application Index, which rose sequentially.
New Home Market: D+
The new home market is relatively unchanged from last month, with most indicators grading poorly and our overall grade for the new home market unchanged at a D+. While new home sales increased to 323,000 units on an annualized basis, rolling 12-month sales decreased to 298,000 transactions, which is a new historical low that dates back to 1963 when the Census Bureau began tracking this data point. It should be noted, however, that the sample size used by the Census Bureau to calculate new home sales is extremely small and the confidence interval consequently large. The median single-family new home price rose to $217,900 this month, but is still down 3.1% Y-O-Y. Supply of new homes continues to dwindle, as evidenced by the months of unsold homes metric, currently at 6.5 months, down from 7.2 months in March. In addition, new home inventory (NSA), declined to 175,000 this month, hitting a new historical low. Builder confidence was unchanged in May, as the Housing Market Index was flat at 16, still far below its historical average of 50.
Housing Supply: F
Housing supply indicators are once again poor this month, with all except one indicator grading at an F. Single-family permits decreased to 385K units (SA), and single-family starts decreased to 394,000 units (SA). Both of these activity levels remain low by historical standards. New housing units completed rose this month to 554,000 (SA), while manufactured housing placements fell to 43,000 (SA). Vacancy rates in the U.S. have improved in recent quarters, but the majority of the U.S. remains oversupplied compared to history, with only 3 states under-supplied, all with small populations. The homeowner vacancy rate decreased this quarter to 2.6%.
Repairs and Remodeling: D+
Aside from residential investment and private residential construction, all indicators improved this month for residential repairs and remodeling. Homeowner improvement activity has actually returned to positive territory for the past four quarters, climbing 7.1% Y-O-Y. The Remodeling Market Index (current) also rose in 1Q11, increasing from 43.3 to 46.1, just below its historical average of 46.4. In addition, the Remodeling Market Index (future expectations) rose from 39.7 in 4Q10 to 46.8 in 1Q11. The Remodeling Market Index (future expectations) has now crossed above its historical average. Residential investment as a percentage of GDP declined to 2.2% this quarter (new historical low), and also fell on an absolute level. Lastly, private residential construction continues its downward trend, falling 12.1% Y-O-Y in April.