Tag Archive for 'Wells Fargo Economics Group'

Will 2018 Meet Expectations?

Will 2018 Meet Expectations?

By Greg Sitek

The future of the U.S. is shrouded in confusion, hostility, distrust, threats, uncertainty, criticism, discord, disasters, failing infrastructure, and an almost endless list of problems. But even so, we are experiencing a growing economy high employment rates, low inflation rates, strong housing market and an equally long list of positive things.

The U.S. ended 2017 with having a string of hurricanes – Harvey, Irma, Jose, and Maria – that caused around $200 Billion dollars in damages only to be followed by a season of fires that destroyed thousands of homes, building, thousands of acres of forests and intensified the stress on an exhausted infrastructure.

Thanks to the thousands of people who have and continue to pitch in with physical help, equipment, materials and supplies hurricane recovery and rebuilding is underway but will take years to accomplish. Groups like Team Rubicon and other veteran organizations along with donations of money and equipment by manufacturers, trade association, dealers, individuals and so many others have made it possible to push ahead with what is an overwhelming task. Healing is always a slow process.

In addition to the tests thrown at us by Mother Nature, we have had a cascade of political and social speed bumps adding hazards as we travel our road into the future slowing the forward momentum and intensifying the risk.

We know what 2017 was like. What can we expect for 2018 and beyond?

Economic forecasting is always tricky and unlike weather forecasting more critically important, especially for the forecaster. We’ve all heard the comment, “Being a weather forecaster is the only job where you can be wrong most of the time and not get fired.” This doesn’t apply to the economists who look at the conditions that are, that were and that will be.

Predictions for 2018 tend to be positive with most economists confident that we will sustain continued and improved national economic growth. I haven’t heard any of them forecasting a recession in the immediate future – the next six months and beyond.

We have included construction industry forecast from leading resources: Wells Fargo Economics Group, American Road & Transportation Builders Association (ARTBA) and Associated Builders & Contractors (ABC). There are many others who do an excellent job of industry forecasting.

On that I wish we could have included but didn’t have room is:

Dodge Data & Analytics (https://www.construction.com/) recently released its 2018 Dodge Construction Outlook, a mainstay in construction industry forecasting and business planning. The report predicts that total U.S. construction starts for 2018 will climb 3% to $765 billion.

“The U.S. construction industry has moved into a mature stage of expansion,” stated Robert Murray, chief economist for Dodge Data & Analytics. “After rising 11% to 13% per year from 2012 through 2015, total construction starts advanced a more subdued 5% in 2016. An important question entering 2017 was whether the construction industry had the potential for further expansion. Several project types, including multifamily housing and hotels, have pulled back from their 2016 levels, but the current year has seen continued growth by single-family housing, office buildings, and warehouses. In addition, the institutional segment of the nonresidential building has been quite strong, led especially by transportation terminal projects in combination with gains for schools and healthcare facilities. As for public works, the specifics of a $1 trillion infrastructure program by the Trump Administration have yet to materialize, so activity continues to hover around basically the plateau for construction starts reached a couple of years ago. Total construction starts in 2017 are estimated to climb 4% to $746 billion.”

“For 2018, there are several positive factors which suggest that the construction expansion has further room to proceed,” Murray continued. “The U.S. economy next year is anticipated to see moderate job growth. Long-term interest rates may see some upward movement but not substantially. While market fundamentals for commercial real estate won’t be quite as strong as this year, funding support for construction will continue to come from state and local bond measures. Two areas of uncertainty related to whether tax reform and a federal infrastructure program get passed, with their potential to lift investment. Overall, the year 2018 is likely to show some construction project types register gains while other project types settle back, with the end result being a 3% increase for total construction starts. By major sector, gains are predicted for residential building, up 4%; and nonresidential building, up 2%; while nonbuilding construction stabilizes after two years of decline.”

Association of Equipment Manufacturers (AEM) has posted a radio link on its CONEXPO-CON/AGG New update. To hear it you can do so at:

http://www.conexpoconagg.com/visit/conexpo-con-agg-radio-podcasts/

2018 Wells Fargo Forecast Highlights

Wells Fargo Reports: Housing Construction Continued to Strengthen in November

Housing starts rose 3.3 percent in November to a 1.297 million-unit pace after a downwardly revised 1.256 million-unit pace in October. Strength in the West and South pushed single-family starts to a decade high.

Residential Building Up in the South and West

  •  Revisions pushed some of the building activity first reported in October into November. Housing starts were at a 1.297 million- unit pace in November and single-family building reached a new cycle-high of 930,000 units.
  •  Residential starts were up in the South and West, but declined in the Midwest and Northeast. Multifamily was behind the slowdown in the Northeast, which has seen completions surge.

Residential Investment to Still Boost Q4 GDP

  • Revisions post-storm pushed the bulk of building activity into November. The building trend is clearly on the rise, particularly compared with earlier this year. Solid readings for both October and November bode well for Q4 GDP growth.
  • Construction is likely to strengthen further in coming months. The latest NAHB/Wells Fargo survey of homebuilders posted solid gains in December, reaching its highest level since 1999.

Wells Fargo Reports: Through Hurricane Effects, CPI Inflation Looked Anemic

Consumer prices rose 0.5 percent in September as gasoline prices surged in the wake of recent hurricanes. Core inflation rose less than expected and suggests the trend in inflation remains rather tepid.

Here Comes the Story of the Hurricane

As was widely expected, the Consumer Price Index posted one of its largest monthly gains of recent years in September amid a jump in energy prices. The combination of refinery outages following Hurricane Harvey and millions of Floridians hitting the road to avoid the path of Hurricane Irma sent gasoline prices up 13.1 percent in September. All told, gasoline accounted for about three-quarters of the headline’s 0.5 percent increase last month.

Beyond energy, however, the effects of Harvey and Irma appeared much more modest. Replacement demand for autos following the storms was not enough to arrest the slide in prices that has been in train since early this year. Despite a 12-year high in new vehicle sales, prices slid 0.4 percent.Used vehicle prices were also down (0.2 percent), although the drops in August and September were the smallest of this year.

Hotel prices may have gotten a lift from the large-scale evacuations, but the 1.5 percent rise in September does not look unusually large relative to the swings in recent months; the lodging away from home index has swung by a greater magnitude in four of the previous five months.

Excluding food and energy, the core index suggests the trend in inflation remains weak relative to the start of the year. Core inflation rose 0.1 percent, which was enough to bring the 3-month annualized rate up to 2.0 percent. While that is above the current year-ago rate and points to the 12-month change edging a bit higher in the coming months, it continues to run below the roughly 2.2 percent pace of late last year.

Core services rose more moderately in September (up 0.2 percent) amid more subdued gains in shelter costs, medical care, and transportation. Meanwhile, core goods prices fell for a seventh consecutive month due to the aforementioned declines in prices for autos, but also apparel, prescription drugs, and household furnishings.

Transitory or Persistent Is Still an Open Question for the Fed

At a time when the Fed is closely examining all inflation data for clues about whether the slowdown that began last spring is likely to be temporary or persistent, today’s CPI report does not provide much comfort. As indicated in the statement and minutes following the September meeting, FOMC members expected to see inflation lifted temporarily by the hurricane-related bump in gasoline and other items last month. Yet the modest increase in core inflation is likely to keep many Fed officials concerned about the near-term path of inflation and whether another rate hike will be warranted in December. Fortunately for the data-dependent Fed, there will be two more CPI and PCE inflation reports before the December decision, meaning there is still time for greater clarity to emerge.

Source: U.S. Department of Labor and Wells Fargo Securities

Wells Fargo Reports: Construction Spending Rose in August

Total construction spending was up 0.5 percent in August, though July’s drop was worse than first reported. Public spending was up slightly in August after considerable weakness in June and July.

Outlays Up Across the Board in August

  • Construction spending was up 0.5 percent in August. Revisions brought more of June’s weakness to July. Beyond the month-to-month volatility and revisions, total construction is running 4.7 percent ahead of last year on a year-to-date basis.
  • Private construction is buoying total construction outlays as the government continues to spend less on most construction categories. Public outlays are down 5.3 percent year-to-date.

Private Residential Had Solid Footing Pre-Storms

  • Private residential construction outlays were up 12.6 percent year-to-date through August. Both single- and multifamily units were up solidly. Construction spending data in coming months are likely to be very volatile due to hurricanes derailing projects and as rebuilding gets underway. The seasonal adjustment will likely exacerbate impacts during fall months. We expect residential construction to be a drag on GDP until maybe next spring.