September 6, 2016


Signs Are Pointing to a Stronger Economy (Simon Constable, Sept. 6, 2016, US NEWS)

A better jobs market. "We are relatively constructive on the economy," says Jason Dillow, chief investment officer at Halcyon Capital Management in New York. "The best way to see that is to look at the jobs data."

He notes that first-time claims for unemployment benefits totaled 263,000 for the week ended August 27, the 78th consecutive week that they have been less than 300,000.

Such a long period of such low levels of claims hasn't been seen since 1970, according to the government.

It's the sign of a robust jobs market, and that should filter through to improved consumer spending, Dillow says. When people have jobs they collectively spend more money and so the economy grows even faster.

Such spending often drives profits of companies selling goods and services that are desired, but not essential, the so-called consumer discretionary sector. A basket of such stocks are held in the Consumer Discretionary Select Sector SPDR exchange-traded fund (ticker: XLY). It has annual expenses of 0.14 percent, or $14 per $10,000 invested.

Low inflation, stable housing. "Inflation is low, but stable. Housing is a mild strength," says Stephen Guilfoyle, chief market economist at Stuart Frankel & Co. in New York. Both are key to a smoothly growing economy.

The Core Personal Consumption Expenditure Deflator, which measures inflation but excludes food and energy prices (which are considered too volatile), has remained well below the Fed's 2 percent target for the past few years.

That means that when the Fed does start raising the cost of borrowing the moves will likely be small and measured, rather than big and fast. In other words, the economy probably won't get stalled by rate moves.

Sales of new single family homes totaled an annualized 654,000 in July, according to data from the government. It marks a 31 percent jump from the same month a year ago.

Not only is the housing data the best in years, but it is also an indicator of future economic activity. Typically houses are sold before they are built, which means that every sale points to hiring of construction workers and spending on materials over the next few months. In addition, when people finally move into a completed home they typically spend money on furnishing it with chairs, curtains and other knickknacks. Retailers such as Target Corp. (TGT) tend to benefit from such spending.

Furthermore, without a strong housing sector, it is hard to see how the economy could grow as fast as it did when President Bill Clinton was in office during the 1990s. So this piece of data is actually very good.

But the biggest push will come from Amnesty, Construction worker shortage weighs on hot U.S. housing market (David Randall, 9/06/16, Reuters)

Eight years after the housing bust drove an estimated 30 percent of construction workers into new fields, homebuilders across the country are struggling to find workers at all levels of experience, according to the National Association of Homebuilders. The association estimates that there are approximately 200,000 unfilled construction jobs in the U.S. - a jump of 81 percent in the last two years.

The ratio of construction job openings to hiring, as measured by the Department of Labor, is at its highest level since 2007.

"The labor shortage is getting worse as demand is getting stronger," said John Courson, chief executive of the Home Builders Institute, a national nonprofit that trains workers in the construction field.

The impact is two-fold. Without enough workers, residential construction is trailing demand for homes, dampening the overall economy.

And with labor costs rising, homebuilders are building more expensive homes to maintain their margins, which means they are abandoning the starter home market. That has left entry-level homes in tight supply, shutting out many would-be buyers at a time when mortgage rates are near historic lows.

Posted by at September 6, 2016 2:33 PM