Distribution of 1-4 Unit Residential Construction Loans Among Banks by Asset Size

2023-03-30T09:14:50-05:00

By Jesse Wade on March 30, 2023 • According to NAHB analysis of Federal Deposit Insurance Corporation (FDIC) data, large banks (assets greater than $10 billion) have increased their share of the residential construction loan market above pre-Great Recession levels in recent years. A 1-4 family residential construction loan is used for residential 1-4 family construction and land development. The majority of 1-4 residential construction loans are still held by small banks with less than $10 billion in assets, but their combined share of the residential construction market has decreased from 2014 highs. The total balance of outstanding 1-4 residential construction loans was $104.8 billion at the end of 2022. The most recent AD&C analysis notes that this loan balance is increasing because newly built homes are remaining in inventory for longer as builders wait for buyers to return to the market.  This balance has risen from a minimum of $42.3 billion over the past 10 years but remains much lower than the balance in 2008 ($158.1 billion).  The share of residential construction loans has fluctuated as markets recovered and returned to normal following the Great Recession. Smaller banks (less than $10 billion in assets) held a 66.34% share of residential construction loans in 2014; this share fell to 52.37% in 2022. Scaling the residential construction loan balances by total assets, the largest banks have the lowest concentration of residential construction lending. Banks with more than $100 million in assets but less than $1 billion have the highest share of residential construction loans relative to total assets. By the end of 2022, the share of residential construction loan balance to total assets was 2.01% for banks with assets between $100 million and $1 billion — this is the highest ratio historically among all the bank sizes. Across all bank sizes, the share of residential construction loans to total assets continues to remain low relative to 2008. Another differentiation among the bank sizes is that historically, a significant majority of banks with assets between $100 million and $10 billion have held a 1–4 residential construction loan balance. Approximately nine out of ten banks with this asset size held a balance in 2022. For banks with more than $10 billion in assets, the share drops to around eight in ten. The smallest banks with assets less than $100 million have seen a continual drop in the share that hold residential construction loans. In 2008, 67.98% of banks with assets less than $100 million held a 1-4 residential construction loan balance; this share fell 14.37 percentage points to 53.61% by 2022. Across all banks, the proportion that have a residential construction loan balance reached a 14-year maximum at 83.57% in 2022. While only about half of banks with under $100 million in assets hold a 1-4 residential construction loan balance, the lowest of any bank size group, 37.71% of these small banks have an outstanding 1-4 residential construction loan balance that exceeds their nonresidential construction loan balance, the second largest proportion. In 2008, the proportion of banks with more than $100 million but less than $1 billion in assets that had a larger 1-4 residential construction loan balance than nonresidential construction was 27.57%. During the Great Recession, this proportion fell to 22.37% but has well surpassed the 2008 level by reaching 37.72% in 2022. For banks with assets between $1 billion and $10 billion, their proportion in 2022 was 11.66%, which is 2.24 percentage points lower than their 2008 level. The largest banks with more than $10 billion in assets had a proportion of 3.16% in 2022, well below their 2008 level of 13.16%. Related ‹ Construction Self-Employment Rises Post PandemicTags: construction finance, economics, finance, home building, housing, housing finance

Distribution of 1-4 Unit Residential Construction Loans Among Banks by Asset Size2023-03-30T09:14:50-05:00

Employment Situation in February: State-Level Analysis

2023-03-28T14:16:46-05:00

Nonfarm payroll employment increased in 44 states and the District of Columbia in February compared to the previous month, while five states lost jobs. Oklahoma remained unchanged. According to the Bureau of Labor Statistics, nationwide total nonfarm payroll employment increased by 311,000 in February, following a gain of 504,000 jobs in January. On a month-over-month basis, employment data was strong in Texas, which added 58,200 jobs, followed by Florida (+38,800), and California (+32,300). Oregon, New Hampshire, Kansas, Arkansas, and Maryland lost a total of 8,600 jobs.  In percentage terms, employment in Utah increased by 0.6% while New Hampshire reported a 0.2% decline between January and February. Year-over-year ending in February, 4.3 million jobs have been added, marking a more than full recovery of the labor market from the COVID-19 pandemic induced recession. All the states and District of Columbia added jobs compared to a year ago. The range of job gains spanned 611,400 jobs in Texas to 2,500 jobs added in West Virginia. In percentage terms, Nevada reported the highest increase by 5.1%, while West Virginia increased by 0.4% compared to a year ago. Across the 48 states which reported construction sector jobs data—which includes both residential as well as non-residential construction— 24 states reported an increase in February compared to January, while 19 states lost construction sector jobs. Five states remained unchanged. California added 7,600 construction jobs, while Tennessee lost 1,700 jobs. Overall, the construction industry added a net 24,000 jobs in February compared to the previous month. In percentage terms, Rhode Island increased by 1.7% while Iowa reported a decline of 1.9% between January and February. Year-over-year, construction sector jobs in the U.S. increased by 249,000, which is a 3.2% increase compared to the February 2022 level. Texas added 37,900 jobs, which was the largest gain of any state, while West Virginia lost 2,200 construction sector jobs. In percentage terms, Rhode Island had the highest annual growth rate in the construction sector by 12.4%. Over this period, West Virginia reported a decline of 6.5%. Related ‹ Consumer Confidence Increased Slightly in MarchTags: construction labor, economics, state and local markets, state employment

Employment Situation in February: State-Level Analysis2023-03-28T14:16:46-05:00

Permits Decline At The Start of 2023

2023-03-14T09:27:13-05:00

By Danushka Nanayakkara-Skillington on March 14, 2023 • Over the first month of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 53,062. On a year-over-year (YoY) basis, this is 36.4% below the January 2022 level of 83,404. Year-to-date ending in January, single-family permits declined in all four regions. The Northeast posted a decline of 20.3%, while the West region reported the steepest decline of 46.9%. The Midwest declined by 39.1% and the South declined by 33.5% in single-family permits during this time. The South posted an increase of 16.4% in multifamily permits while the other three regions posted declines. Multifamily permits were down 33.1% in the Northeast, down 24.2% in the Midwest, and down 11.1% in the West. Between January 2022 YTD and January 2023 YTD, the District of Columbia, North Dakota, and New Mexico saw growth in single-family permits issued. The District of Columbia recorded the highest growth rate during this time at 20.0% going from 10 permits to 12. Forty-eight states reported a decline in single-family permits during this time ranging from 2.9% decline in New Jersey to 60.7% decline in Arizona. The ten states issuing the highest number of single-family permits combined accounted for 65.6% of the total single-family permits issued. Year-to-date, ending in January, the total number of multifamily permits issued nationwide reached 47,936. This is 2.0% below the January 2022 level of 48,912. Between January 2022 YTD and January 2023 YTD, 23 states and the District of Columbia recorded growth, while 26 states recorded a decline in multifamily permits. Rhode Island reported no change. The District of Columbia led the way with a sharp rise in multifamily permits from four to 788 while Maine had the largest decline of 83.0% from 147 to 25. The ten states issuing the highest number of multifamily permits combined accounted for 69.1% of the multifamily permits issued. At the local level, below are the top ten metro areas that issued the highest number of single-family permits. Top 10 Largest SF Markets January 2023 (# of units YTD, NSA) YTD % Change(compared to Dec 2021) Houston-The Woodlands-Sugar Land, TX                                                            2,692 -40% Dallas-Fort Worth-Arlington, TX                                                            2,244 -44% Atlanta-Sandy Springs-Roswell, GA                                                            1,348 -41% Charlotte-Concord-Gastonia, NC-SC                                                            1,324 -19% Phoenix-Mesa-Scottsdale, AZ                                                            1,102 -63% Orlando-Kissimmee-Sanford, FL                                                            1,077 -32% Tampa-St. Petersburg-Clearwater, FL                                                              954 -35% New York-Newark-Jersey City, NY-NJ-PA                                                               945 -4% Nashville-Davidson–Murfreesboro–Franklin, TN                                                               900 -34% Austin-Round Rock, TX                                                               892 -59% For multifamily permits, below are the top ten local areas that issued the highest number of permits. Top 10 Largest MF Markets January 2023 (# of units YTD, NSA) YTD % Change(compared to Dec 2021) Houston-The Woodlands-Sugar Land, TX                                                            3,574 147% Atlanta-Sandy Springs-Roswell, GA                                                            2,359 318% Dallas-Fort Worth-Arlington, TX                                                            2,336 -18% New York-Newark-Jersey City, NY-NJ-PA                                                            1,638 -55% Washington-Arlington-Alexandria, DC-VA-MD-WV                                                            1,430 2% Miami-Fort Lauderdale-West Palm Beach, FL                                                            1,384 21% Denver-Aurora-Lakewood, CO                                                           1,367 162% Raleigh, NC                                                            1,223 112% Tampa-St. Petersburg-Clearwater, FL                                                            1,156 1462% San Antonio-New Braunfels, TX                                                               983 -38% Related ‹ Employment Situation in January: State-Level AnalysisTags: home building, multifamily, single-family, state and local markets, state permits

Permits Decline At The Start of 20232023-03-14T09:27:13-05:00

Employment Situation in January: State-Level Analysis

2023-03-13T17:21:54-05:00

Nonfarm payroll employment increased in 48 states and the District of Columbia in January compared to the previous month, while Wyoming and Rhode Island lost jobs. According to the Bureau of Labor Statistics, nationwide total nonfarm payroll employment increased by 504,000 in January, following a gain of 260,000 jobs in December. On a month-over-month basis, employment data was strong in California, which added 96,700 jobs, followed by Texas (+48,600), and Florida (+30,000). Wyoming and Rhode Island lost a total of 1,100 jobs. In percentage terms, employment in Arizona increased by 0.7% while Rhode Island reported a 0.1% decline between December and January. Year-over-year ending in January, 4.9 million jobs have been added, marking a more than full recovery of the labor market from the COVID-19 pandemic induced recession. All the states and District of Columbia added jobs compared to a year ago. The range of job gains spanned 654,100 jobs in Texas to 3,400 jobs added in West Virginia. In percentage terms, Nevada reported the highest increase by 6.0%, while West Virginia increased by 0.5% compared to a year ago. Across the 48 states which reported construction sector jobs data—which includes both residential as well as non-residential construction— 40 states reported an increase in January compared to December, while seven lost construction sector jobs. Mississippi remained unchanged. Indiana added 6,700 construction jobs, while California lost 7,300 jobs. Overall, the construction industry added a net 35,000 jobs in January compared to the previous month. In percentage terms, Iowa increased by 4.7% while West Virginia reported a decline of 1.8% between December and January. Year-over-year, construction sector jobs in the U.S. increased by 304,000, which is a 4.0% increase compared to the January 2022 level. Texas added 34,800 jobs, which was the largest gain of any state, while West Virginia lost 1,600 construction sector jobs. In percentage terms, Montana had the highest annual growth rate in the construction sector by 12.7%. Over this period, West Virginia reported a decline of 4.8%. Related ‹ Job Gains Continue in February Amid Mixed SignalsTags: construction labor, economics, state and local markets, state employment

Employment Situation in January: State-Level Analysis2023-03-13T17:21:54-05:00

Job Gains Continue in February Amid Mixed Signals

2023-03-10T12:26:11-06:00

Job growth continued in February. After a revised 504,000 job gain in January, total nonfarm payroll employment increased by 311,000 in February, and the unemployment rate edged up to 3.6% from 3.4% in January. Wage growth increased to a 4.6% year-over-year gain from 4.4% last month, but down compared to February 2022. Today’s job report indicates that, overall, the labor market is still strong, but showing signs of slowing of a strong start for the year. Construction industry employment (both residential and non-residential) totaled 7.9 million and exceeds its February 2020 level. Residential construction gained 12,400 jobs, while non-residential construction employment gained 11,600 jobs in February. Residential construction employment exceeds its level in February 2020, while all non-residential construction jobs lost in March and April 2020 have now been recovered. Total nonfarm payroll employment increased by 311,000 in February, following a gain of 504,000 in January, as reported in the Employment Situation Summary. The estimates for the previous two months were revised downward. The estimate for December was revised down by 21,000 from +260,000 to +239,000, while the January increase was revised down by 13,000, from +517,000 to +504,000. Despite tight monetary policy, over 4.3 million jobs have been created since March 2022, when the Fed enacted the first interest rate hike in more than three years. The unemployment rate edged up to 3.6% in February. The number of employed persons increased 177,000, while the number of unemployed persons rose 242,000. Meanwhile, the labor force participation rate, the proportion of the population either looking for a job or already holding a job, edged up 0.1 percentage point to 62.5% in February, reflecting the increase in the number of persons in the labor force (+419,000). Moreover, the labor force participation rate for people who aged between 25 and 54 increased to 83.1%. While the overall labor force participation rate is still below its pre-pandemic levels at the beginning of 2020, the rate for people who aged between 25 and 54 is back to the pre-pandemic level. For industry sectors, leisure and hospitality (+105,000), retail trade (+50,000), government (+46,000), professional and business services (+45,000), and health care (+44,000) have notable job gains in February. Employment in the overall construction sector rose by 24,000 in February, following a 35,000 gain in January. Residential construction gained 12,400 jobs, while non-residential construction employment gained 11,600 jobs in February. Residential construction employment now stands at 3.3 million in February, broken down as 939,000 builders and 2.3 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction was 6,917 a month. Over the last 12 months, home builders and remodelers added 90,300 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 1,292,600 positions. In February, the unemployment rate for construction workers decreased by 0.3 percentage points to 4.9% on a seasonally adjusted basis. The unemployment rate for construction workers has been trending lower, after reaching 14.2% in April 2020, due to the housing demand impact of the COVID-19 pandemic. Related ‹ Households’ Real Estate Asset Value Falls for First Time Since 2012Tags: employment, labor force, labor force participation rate, residential construction employment

Job Gains Continue in February Amid Mixed Signals2023-03-10T12:26:11-06:00

Home Price Gains Weakened in December

2023-02-28T10:21:37-06:00

Seasonally adjusted home prices continued to fall in December and have declined for six consecutive months due to high mortgage rates and economic uncertainty. Locally, all 20 metro areas, reported by S&P Dow Jones Indices, experienced negative home price appreciation in December. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, reported by S&P Dow Jones Indices, fell at a seasonally adjusted annual growth rate of 4.1% in December, following a 3.4% decline in November and a 2.8% decrease in October. After a decade of growth, home prices started to decline in July, driven by elevated mortgage rates and weakening buyer demand. The July decrease marked the first decline since February 2012, and this month’s decline marks the sixth consecutive monthly decline. Nonetheless, national home prices are now 61% higher than their last peak during the housing boom in March 2006. On a year-over-year basis, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index posted a 5.8% annual gain in December, down from 7.6% in November. Year-over-year home price appreciation slowed for the ninth consecutive month as the monthly growth rates have turned negative. Meanwhile, the Home Price Index, released by the Federal Housing Finance Agency (FHFA), decreased at a seasonally adjusted annual rate of 1.2% in December, following a 1.4% decrease in November. On a year-over-year basis, the FHFA Home Price NSA Index rose by 6.6% in September, down from 8.2% in the previous month. The FHFA thus confirmed the slowdown in home price appreciation. In addition to tracking national home price changes, S&P Dow Jones Indices reported home price indexes across 20 metro areas in December. All 20 metro areas reported negative home price appreciation. Their annual growth rates ranged from -16.5% to -1.4% in December. Las Vegas, Phoenix, and Portland experienced the most monthly declines in home prices. Las Vegas declined 16.5%, while Phoenix and Portland declined 14.8% and 14.7%, respectively. The scatter plot below lists the 20 major U.S. metropolitan areas’ annual growth rates in November and in December 2022. The X-axis presents the annual growth rates in November; the Y-axis presents the annual growth rates in December.  Compared to last month, home prices declined faster in December in the following 11 metro areas: San Diego, Denver, Washington, DC, Miami, Chicago, Detroit, Minneapolis, Las Vegas, Cleveland, Portland, and Seattle. Related ‹ Apartment Absorption Rate Falls but Remains above 60%Tags: FHFA Home Price Index, home prices, S&P CoreLogic Case-Shiller Home Price Index

Home Price Gains Weakened in December2023-02-28T10:21:37-06:00

Single-Family Permits Declined 2022

2023-02-14T09:16:21-06:00

For 2022, the total number of single-family permits issued year-to-date (YTD) nationwide reached 972,180. On a year-over-year (YoY) basis, this is 12.5% below the 2021 level of 1,111,414. Year-to-date ending in December, single-family permits declined in all four regions. The South posted a decline of 10.4%, while the Western region reported the steepest decline of 15.9%. The Northeast declined by 12.5% and the Midwest declined by 15.8% for single-family permits during this time. On the other hand, multifamily permits posted increased in all but one region, Northeast (-17.1%). Permits were 23.8% higher in the South, 12.7% higher in the Midwest, and 3.6% higher in the West. Between December 2021 YTD and December 2022 YTD, New Mexico, Montana, and the District of Columbia saw growth in single-family permits issued. New Mexico recorded the highest growth rate during this time at 33.5% going from 5,492 permits to 7,331. Forty-eight states reported a decline in single-family permits during this time with Colorado posting the steepest decline of 30.0% declining from 34,244 permits to 23,965. The ten states issuing the highest number of single-family permits combined accounted for 63.5% of the total single-family permits issued. Year-to-date, ending in December, the total number of multifamily permits issued nationwide reached 679,898. This is 9.9% ahead of the December 2021 level of 618,496. Between December 2021 YTD and December 2022 YTD, 35 states and the District of Columbia recorded growth, while 15 states recorded a decline in multifamily permits. Georgia led the way with a sharp rise (130.2%) in multifamily permits from 12,973 to 29,863 while Pennsylvania had the largest decline of 71.0% from 29,901 to 8679. The ten states issuing the highest number of multifamily permits combined accounted for 63.4% of the multifamily permits issued. At the local level, below are the top ten metro areas that issued the highest number of single-family permits. Top 10 Largest SF Markets December 2022 (# of units YTD, NSA) YTD % Change(compared to Dec 2021) Houston-The Woodlands-Sugar Land, TX                                                          47,633 -9% Dallas-Fort Worth-Arlington, TX                                                          43,409 -13% Phoenix-Mesa-Scottsdale, AZ                                                          26,828 -24% Atlanta-Sandy Springs-Roswell, GA                                                          26,382 -17% Austin-Round Rock, TX                                                          21,358 -13% Charlotte-Concord-Gastonia, NC-SC                                                          18,987 0% Orlando-Kissimmee-Sanford, FL                                                          16,194 -9% Tampa-St. Petersburg-Clearwater, FL                                                          15,667 -19% Nashville-Davidson–Murfreesboro–Franklin, TN                                                          15,189 -6% Jacksonville, FL                                                          14,368 -13% For multifamily permits, below are the top ten local areas that issued the highest number of permits.  Top 10 Largest MF Markets December 2022 (# of units YTD, NSA) YTD % Change(compared to Dec 2021) New York-Newark-Jersey City, NY-NJ-PA                                                          46,496 3% Dallas-Fort Worth-Arlington, TX                                                          33,872 26% Houston-The Woodlands-Sugar Land, TX                                                          28,153 69% Austin-Round Rock, TX                                                          22,661 -14% Los Angeles-Long Beach-Anaheim, CA                                                          21,597 9% Atlanta-Sandy Springs-Roswell, GA                                                          20,820 176% Washington-Arlington-Alexandria, DC-VA-MD-WV                                                          20,644 51% Phoenix-Mesa-Scottsdale, AZ                                                          20,541 23% Seattle-Tacoma-Bellevue, WA                                                          19,783 -10% Minneapolis-St. Paul-Bloomington, MN-WI                                                          15,840 12% Related ‹ Materials Remain Builders’ Top Challenge, but Inflation and Interest Rates are ThreateningTags: home building, multifamily, single-family, state and local markets, state permits

Single-Family Permits Declined 20222023-02-14T09:16:21-06:00

A New Year Starts with Strong Gains

2023-02-03T11:20:25-06:00

Job growth rebounded in January. After declines for five consecutive months, total nonfarm payroll employment increased by 517,000 in the first month of 2023 and the unemployment rate hit a 53-year low at 3.4% as more people entered the labor market. Construction industry employment (both residential and non-residential) totaled 7.9 million and exceeds its February 2020 level. Residential construction gained 5,500 jobs, while non-residential construction employment gained 19,300 jobs in January. Residential construction employment exceeds its level in February 2020, while 96% of non-residential construction jobs lost in March and April 2020 have now been recovered. Total nonfarm payroll employment increased by 517,000 in January, following a gain of 260,000 in December, as reported in the Employment Situation Summary. It marks the largest monthly job gain in six months. The estimates for the previous two months were revised upward. The estimate for November was revised up by 34,000 from +256,000 to +290,000, while the December increase was revised up by 37,000, from +223,000 to +260,000. The unemployment rate edged down to 3.4% in January, the lowest level since 1969. The number of employed persons increased by 894,000. Meanwhile, the labor force participation rate, the proportion of the population either looking for a job or already with a job, edged up 0.1 percentage point to 62.4% in January, reflecting the increase in the number of persons in the labor force (+866,000). Moreover, the labor force participation rate for people who aged between 25 and 54 increased to 82.7%. Both of these two rates are still below their pre-pandemic levels in the beginning of 2020, and are not fully recovered from the COVID-19 pandemic. In January, job gains were broad-based, led by gains in leisure and hospitality (+128,000), professional and business services (+82,000), and health care (+58,000). Employment in the overall construction sector rose by 25,000 in January, following a 26,000 gain in December. Residential construction gained 5,500 jobs, while non-residential construction employment gained 19,300 jobs in December. Residential construction employment now stands at 3.3 million in January, broken down as 934,000 builders and 2.3 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction was 6,100 a month. Over the last 12 months, home builders and remodelers added 114,600 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 1,282,900 positions. In January, the unemployment rate for construction workers ticked up by 0.1 percentage point to 4.4% on a seasonally adjusted basis. The unemployment rate for construction workers has been trending lower, after reaching 14.2% in April 2020, due to the housing demand impact of the COVID-19 pandemic. Related ‹ Further Downshift for the FedTags: employment, labor force, labor force participation rate, residential construction employment

A New Year Starts with Strong Gains2023-02-03T11:20:25-06:00

New Home Sales Uptick in December But Market Weakness Remains

2023-01-26T16:25:34-06:00

While new home sales posted a modest gain in December, elevated mortgage rates and higher construction costs continue to hinder housing affordability and put a damper on consumer demand. The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimated sales of newly built, single-family homes in December at a 616,000 seasonally adjusted annual pace, which is a 2.3% increase over downwardly revised November rate of 602,000 and is 26.6% below the December 2021 estimate of 839,000. A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the December reading of 616,000 units is the number of homes that would sell if this pace continued for the next 12 months. Sales-adjusted inventory levels are at an elevated 9.0 months’ supply in December. A measure near a 6.0 months’ supply is considered balanced. A year ago, there were just 35,000 completed, ready to occupy homes available for sale (not seasonally adjusted). By December 2022, that number increased 117% to 76,000, reflecting flagging demand and more standing inventory due to lower sales. Completed, ready to occupy inventory however remains just 16.5% of total inventory and homes under construction accounts for 62.6 of the inventory. Home that has not started construction when the sales contract is signed accounts for 20.9% of new homes sold in December. The median sales price decreased 3.7% to $442,100 in December but is up 7.8% compared to a year ago due to higher construction costs. The number of entry-level homes priced below $300,000 has been steadily falling in recent years. In 2021, 23% of new home sold were priced below $300,000. That share has now fallen to 10%. In 2022, there were 266,000 homes that were priced above $500,000 compared to 226,000 in 2021. Nationally, on a year-to-year basis, 644,000 new homes were sold in 2022. This is 16.4% below the 2021 level of 771,000. Regionally, on a year-to-year basis, new home sales fell in all four regions, down 8.2% in the Northeast, 22.1% in the Midwest, 13.0% in the South and 23.5% in the West. Related ‹ Economic Growth and Signs of Cooling Inflation End 2022Tags: economics, home building, housing, new home sales, sales, single-family

New Home Sales Uptick in December But Market Weakness Remains2023-01-26T16:25:34-06:00

Economic Growth and Signs of Cooling Inflation End 2022

2023-01-26T16:25:51-06:00

The U.S. economy continued to grow in the fourth quarter of 2022. As consumer spending and private inventory investment helped increase GDP, residential fixed investment dragged down the contribution to percent change in real GDP by 1.29 percentage points. More importantly, the data from the GDP report suggests that inflation is cooling. The GDP price index, rose 3.5% for the fourth quarter, down from a 9.0% increase in the second quarter and a 4.4% increase in the third quarter. Also, the Personal Consumption Expenditures (PCE) price Index, capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior, rose 3.2% in the fourth quarter, compared with a 7.5% increase in the first quarter of 2022. Looking forward, only a mild recession is expected for this cycle due to the Federal Reserve tightening financial conditions. According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 2.9% in the fourth quarter, following a 3.2% increase in the third quarter. In 2022, real GDP contracted in the first half and then rebounded. For the full year, real GDP increased 2.1% in 2022, down from a 5.9% increase in 2021 and slightly better than NAHB’s forecast of 1.9%. This quarter’s increase reflected increases in private inventory investment, consumer spending, government spending, and nonresidential fixed investment, partially offset by decreases in residential fixed investment and exports. The increase in private inventory investment was led by manufacturing as well as mining, utilities, and construction industries. Consumer spending rose at an annual rate of 2.1% in the fourth quarter, reflecting increases in both services and goods. While expenditures on services increased 2.6% at an annual rate, goods spending increased 1.1% at an annual rate, led by motor vehicles and parts (+7.4%). Meanwhile, federal government spending increased 6.2% in the fourth quarter, led by an increase in nondefense spending, while state and local government spending rose 2.3%, led by an increase in compensation of state and local government employees. The deceleration in real GDP in the fourth quarter mainly reflected a downturn in exports and decelerations in nonresidential fixed investment, state and local government spending and consumer spendings. Nonresidential fixed investment increased 0.7% in the fourth quarter. An increase in intellectual property products was partly offset by a decrease in equipment. Additionally, residential fixed investment (RFI) decreased 26.7% in the fourth quarter. This was the seventh consecutive quarter for which RFI subtracted from the headline growth rate for overall GDP. Within residential fixed investment, single-family structures declined 26.7% at an annual rate, multifamily structures rose 17.3% and other structures (specifically brokers’ commissions) decreased 23.1%. Related ‹ Housing Share of GDP Lower in the Fourth Quarter of 2022New Home Sales Uptick in December But Market Weakness Remains ›Tags: economics, gdp, inflation, macroeconomics, macroeconomy, residential fixed investment

Economic Growth and Signs of Cooling Inflation End 20222023-01-26T16:25:51-06:00

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