U.S. economic news for the week was dominated by the Federal Reserve’s policy meeting. Strains at Chinese real estate group Evergrande dominated international headlines.
Federal Reserve policy was unchanged on Wednesday, but the Fed set expectations for the beginning of the unwind of extraordinary measures it used to combat the COVID recession. We look for the Fed to announce at the next policy meeting, over November 2/3, that they will begin to taper the rate of asset purchases in November. Federal Open Market Committee Chair Jay Powell said that he expects to see tapering completed by around mid-year 2022. We also saw a new Dot Plot on Wednesday showing expectations for interest rate policy by individual FOMC members. The new Dot Plot showed that Fed officials pulled their expectations for interest rate lift-off forward marginally compared with where they were in June. For now, we are comfortable maintaining our interest rate forecast which shows fed funds liftoff in very late 2022.
In his post-policy-announcement press conference Jay Powell said the Evergrande situation is particular to China with only limited direct exposure for the U.S.
Existing home sales for August fell by 2.0 percent to a 5.88 million unit annual rate. This is still within the range seen over the previous year. The inventory of available existing homes for sale was stable at 2.6 months’ worth. The median sales price of an existing home was up 14.9 percent in August compared with a year earlier.
New home sales for August rose by 1.5 percent to a 740,000 unit annual rate. This is still within the range seen over the previous year. The inventory of available new homes for sale increased slightly to 6.1 months’ worth. The median sales price of a new home was up 20.1 percent in August compared with a year earlier.
Initial claims for unemployment insurance increased by 16,000, to hit 351,000 for the week ending September 18. Continuing claims gained 131,000 for the week ending September 11, to hit 2,845,000. It is no surprise to see choppy labor market data for September with back-to-school, back to-office, COVID-D, the end of enhanced UI benefits and ongoing supply-chain problems for the auto industry and other manufacturers.
Total U.S. housing starts increased by 3.9 percent in August as multifamily starts jumped. Multifamily housing starts increased by 20.6 percent for the month, to a 539,000 unit annual rate. This is the strongest rate for multifamily starts since January 2020. Single-family starts fell by 2.8 percent in August, to a 1,076,000 unit annual rate, still rangebound since late-2020. Total permits for new construction increased by 6.0 percent in August, to a 1,728,000 unit rate as multifamily permits climbed. Permits for single-family construction were little changed for the month, up slightly by 0.6 percent, to a 1,054,000 unit rate. Permits for multifamily construction increased by 15.8 percent in August, to a 674,000 unit annual rate.
Homebuilder confidence improved in September according to the National Association of Homebuilders.
Mortgage applications for purchase increased by 2.2 percent for the week of September 17 after a 7.5 percent gain the prior week. On a four-week moving average basis, purchase apps were down 15.1 percent compared with the equivalent week a year earlier.
The Conference Board’s Leading Economic Index for the U.S. increased by a strong 0.9 percent in August, driven by declining unemployment insurance claims, increasing new orders for manufacturers and stronger building permits. The Coincident Index increased by 0.2 percent and the Lagging Index inched up by 0.1 percent in August.
Dr. Robert Dye is senior vice president and chief economist for Comerica. Daniel Sanabria is a senior economist for Comerica.