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Mar 1, 2019

Real Time Economics | More Americans Are Buying a Home Again.

The Wall Street Journal.
Percentage logo.
Real Time Economics
The U.S. economy is looking pretty good. Overseas, not so much, with manufacturers around the world pulling back. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments or suggestions by replying to this email.
 

I'm Sensing a Pattern

By one measure, the U.S. just enjoyed the best full year of economic growth since 2005. But the trend isn't great. Gross domestic product advanced at a 2.6% pace in the fourth quarter. That's fine. But it was down from 4.2% in the second and 3.4% in the third quarter. Macroeconomic Advisers is forecasting 1.1% this quarter. There's no sign the economy is sinking toward recession and in fact it looks to be on solid ground. But it's slowing. "We expect GDP growth to slow to 2.2% this year and 1.2% in 2020," says Capital Economics's Paul Ashworth. That would be right back on par for the nearly decade-long expansion, suggesting that 2018's robust growth was a one-time blip—helped along by tax cuts and more federal spending—rather than a permanent breakout.
Percentage logo.
Real Time Economics
The U.S. economy is looking pretty good. Overseas, not so much, with manufacturers around the world pulling back. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments or suggestions by replying to this email.
 

I'm Sensing a Pattern

By one measure, the U.S. just enjoyed the best full year of economic growth since 2005. But the trend isn't great. Gross domestic product advanced at a 2.6% pace in the fourth quarter. That's fine. But it was down from 4.2% in the second and 3.4% in the third quarter. Macroeconomic Advisers is forecasting 1.1% this quarter. There's no sign the economy is sinking toward recession and in fact it looks to be on solid ground. But it's slowing. "We expect GDP growth to slow to 2.2% this year and 1.2% in 2020," says Capital Economics's Paul Ashworth. That would be right back on par for the nearly decade-long expansion, suggesting that 2018's robust growth was a one-time blip—helped along by tax cuts and more federal spending—rather than a permanent breakout.

What to Watch Today

U.S. personal income for January is expected to rise 0.3% and the personal consumption expenditures price index, excluding food and energy, is expected to rise 0.2% from the prior month. (8:30 a.m. ET)
IHS Markit's U.S. manufacturing purchasing managers index for February is expected to inch up to 54.0 from 53.7. (9:45 a.m. ET)
The Institute for Supply Management's manufacturing PMI for February is expected to hold steady at 55.6. (10 a.m. ET)
The University of Michigan's consumer sentiment index for February is expected to inch up to 95.8 from 95.5. (10 a.m. ET)
U.S. auto sales for February are expected to hit an annual pace of 16.8 million, up slightly from 16.7 million a month earlier.
The Atlanta Fed’s Raphael Bostic speaks at a National Association for Business Economics conference at 12:50 p.m. ET.

Top Stories

Home Sweet Home

The U.S. homeownership rate climbed in the fourth quarter to the highest level in nearly five years. Despite scant housing inventory and low affordability, “buyers are really expressing their desire for the American dream, albeit surely but slowly,” says Ralph McLaughlin, deputy chief economist at CoreLogic Inc., a real-estate data firm.
A shift toward rentals at the expense of homeownership had been going on for years after the housing bust, both for lifestyle and affordability reasons. Now, there is growing evidence that trend may be reversing. The U.S. added about 1.7 million owner households in 2018 but lost 167,000 renter households, Laura Kusisto reports.

Small Is Beautiful

One thing working in favor of price-sensitive homebuyers: smaller homes. Data from real estate website Redfin shows square footage for newly built single-family homes topped out in 2014 and 2015. That suggests demand has shifted toward less expensive new construction, which may in turn help free up inventory for first-time buyers. "Builders who have been focused on building higher-priced homes are feeling the change in demand the most," says Redfin chief economist Daryl Fairweather.

Cha-Ching!

Average tax refunds rebounded after a weak start to the tax-filing season. The average tax refund was $3,143 through Feb. 22, a 1.3% increase from the same period last year. Before that, average tax refunds had been running behind last year’s pace, Kate Davidson and Richard Rubin report.
About two-thirds of U.S. households are paying less in taxes for 2018 than they would have under the old law and about 6% are paying more, according to the Tax Policy Center. But refund size is likely to fluctuate for individual households because Treasury changed the paycheck-withholding tables last year and many people received much of the tax cut through smaller paycheck deductions.

Better but Not Good

A private gauge of China’s factory activity rebounded to a three-month high in February. Even so, the Caixin China manufacturing purchasing managers index has now held below 50, the mark that separates expansion from contraction, for three straight months. China’s official manufacturing PMI, released Thursday, fell to its lowest level in three years last month due to slower production amid the Lunar New Year holidays and sluggish global demand, Grace Zhu reports.

Data Whiplash

Data from Europe had something for everybody. The IHS Markit eurozone manufacturing purchasing managers index fell below 50 for the first time since June 2013, signaling the sector is contracting. Germany and Italy were the biggest drags—with Italy's index at a 69-month low and Germany's at a 74-month low. On the bright side, the eurozone's unemployment rate fell in December, while the inflation rate has picked up, a double dose of encouragement for a European Central Bank seeking signs of stabilization in the currency area's economy, Paul Hannon reports. At 7.8% in December and January, the jobless rate was the lowest since October 2008.

And the U.S.?

Look for key readings on U.S. factories this morning. Markit's U.S. manufacturing PMI for February is expected to inch up to 54.0, and the Institute for Supply Management's manufacturing PMI for February is expected to hold steady at 55.6, both well above the 50-mark that signals expansion.

One Good Sign...

U.S. manufacturing employment has risen for 18 straight months among those holding production or nonsupervisory jobs, the longest stretch of gains since the mid-1990s. Employers have added 274,000 non-managerial manufacturing jobs since July 2017, Chip Cutter reports.

Red Hot

In fact, all sorts of people who have previously had trouble landing a job are now finding work. Racial minorities, those with less education and people working in the lowest-paying jobs are getting bigger pay raises and, in many cases, experiencing the lowest unemployment rate ever recorded for their groups. They are joining manufacturing workers, women in their prime working years, Americans with disabilities and those with criminal records, among others, in finding improved job prospects after years of disappointment.
Read Eric Morath and Lauren Weber's dive into the hottest job market in half a century here.
 

Quote of the Day

The economy is in a good place.
Federal Reserve Chairman Jerome Powell, in a speech

What Else We're Reading

The gig economy isn't the future. It's not even the present. "Perhaps surprisingly, workers were slightly more apt to have standard work arrangements in 2017 than in 2005. In 2017, the total share of the labor force working in nonstandard arrangements was 10.1 percent, down from 10.9 percent in 2005," Eileen Appelbaum, Arne Kalleberg and Hye Jin Rho write in a report by the Center for Economic and Policy Research and the Economic Policy Institute.
Workers without a college degree today perform less-skilled work than decades earlier. "This deskilling reflects the joint effects of automation and international trade, which have eliminated the bulk of non-college production, administrative support, and clerical jobs, yielding a disproportionate polarization of urban labor markets. The unwinding of the urban non-college occupational skill gradient has, I argue, abetted a secular fall in real non-college wages," David Autor writes in a National Bureau of Economic Research working paper.

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