Tag Archive for 'Wells Fargo Securities Group'

Wells Fargo Reports: Dodge Momentum Index Reverses Weakness in May

The Dodge Momentum Index gained 4.0 percent in May following April’s decline. Reaching a post-recession high, the commercial sector posted a solid monthly gain and institutional rebounded during the month.

May DMI Advances Following Weak April

  • After April’s retreat of 5.1 percent to 133.7, May’s DMI print bounced back a solid 4.0 percent to 139.1. On a year-over-year basis, the index is up 20.8 percent. The prior month’s decline caused some concern, but the rebound in May eases worries and is consistent with moderate construction growth ahead. Over the month, six $100 million plus projects entered planning, including a $245 million office tower in New Jersey and a $100 million detention center in Texas, in the commercial and institutional sectors, respectively.

Commercial Planning Posts Second Straight Gain

  • The commercial component ballooned to 152.9 in May, the highest level since November 2008, for a 19.4 percent yearly gain. The gain suggests continued construction activity in the sector, despite slowing occupancy and asking rent growth.
  • On the institutional side, May’s 2.5 percent gain to 122.1 is a welcome reading given April’s 12.0 percent drop. Over the year, the sector is up 23.2 percent. That said, the run of double-digit yearly gains may be coming to an end, as planning activity jumped beginning in June 2016 and has remained elevated.




Wells Fargo — Grading the Labor Market Ahead of Graduation Day

The strongest labor market in a decade bodes well for the Class of 2017, but young workers, including college grads, still face a challenging labor market relative to older workers.

Temper Those Graduation Party Plans

The Class of 2017 looks set to graduate into the strongest labor market in a decade. The unemployment rate has fallen to its lowest level since before the recession while labor force participation has stabilized despite the aging population. But how does the labor market for young workers measure up?

College graduates have typically had more success in the labor market, hence the willingness of many college-goers to take on debt in order to finance their education. The unemployment rate for all college grads has averaged less than half that of the overall unemployment rate over the past two decades. For young college graduates, however, the right job is not always found quickly. Historically, the unemployment rate for college grads under the age of 25 has run closely in line with the headline unemployment rate. Yet over the past year, the unemployment rate for young college grads has been little changed (top chart).

The stubbornly higher rate of joblessness for young degree holders over the past few years has likely been in part due to greater labor force attachment. Since the onset of the Great Recession in 2008, the labor force participation rate for college grads 20-24 years has fallen less than the overall participation rate.

Nevertheless, there are other signs that young workers, including college grads, still face a relatively daunting labor market. Under-employment remains more pervasive for young workers. In terms of hours, 20-24 yearolds are most likely to find themselves employed part time despite wanting full-time work (middle chart). Others find themselves overqualified for the job they hold. According to data from the New York Fed, 43 percent of college grads ages 22-27 are in jobs that do not typically require a degree compared to 34 percent of all college grads.

At the same time, wage growth among young workers embarking on a career continues to lag. Whereas teenagers have benefited from higher minimum wage laws, median weekly earnings for 20-24 year olds has trailed other age groups since the past recession (bottom chart).

The slow rate of earnings growth for young workers stands to exacerbate the student debt challenges faced by college-goers. However, while debt burdens continue to climb with each successive class (the Institute for College Access & Success estimated the average debt burden for the Class of 2015 at $30,100), there are indications that borrowers are having a slightly easier time coping. The share of federal loans currently in repayment—both in terms of dollars outstanding and number of recipients—has increased over the past year, while delinquency rates have edged lower. That may have more to do with the growth in income-based repayment plans, however, than the (slowly) improving labor market. Over the past year, the number of federal loan recipients on income-driven plans has risen by 1.37 million while falling slightly for non-income based plans.

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

Wells Fargo Reports: Housing Starts Give Back Much of October’s Spike

Housing starts tumbled 18.7 percent in November but October’s previous reported 25.5 percent spike in starts was revised higher to 27.4 percent. Permits fell 4.7 percent but remain at a healthy 1.2-million unit pace.

Mild Fall Weather Leads To Volatile Monthly Data

Housing starts tumbled 18.7 percent in November, which was larger than consensus estimates. The prior month’s gain was revised higher, however, and permits held up reasonably well. Much of the volatility in starts has been in the multi-sector, which saw starts surge 76 percent in October and fall back 45.1 percent in November. The past three months have been unusually volatile for multifamily starts. Permits have not moved around nearly as much.

Unseasonably mild weather also likely played a role in October’s stronger housing numbers and November’s apparent payback. Homebuilding normally declines in the fall as the holidays approach and temperatures turn cooler. This year’s unseasonably mild fall weather, which led to a plunge in utility use, allowed work to begin on more single-family homes than usual in October, which caused the seasonally adjusted starts number to surge 10.5 that month. On a non-seasonally adjusted basis, single-family starts rose just 7.9 percent.

The expectation of rising interest rates may have also been a factor in October’s surge in new construction. Apartment developers likely rushed to 2.0 lock in financing before the presidential election and many home buyers likely signed purchase contracts and locked in mortgage rates ahead of the 1.6 Fed’s widely anticipated hike in the federal funds rate that finally took place this past week.

With demand pulled forward, starts were primed for a fall in November. Overall starts fell 4.1 percent during the month and starts of projects with 5 units or more tumbled 43.9 percent. With building activity now in its 0.8 seasonally slow period, we feel the year-to-date data provide best measure of new home construction. Overall housing starts are running 4.8 percent 0.4 ahead of their year ago pace, while single-family starts are up 9.6 percent. Year-to-date multifamily starts are down 3.8 percent. All are close to our forecast for 2016, published in our monthly housing report.

Looking Ahead 90

Housing permits fell 4.7 percent in November to a still solid 1.201-million unit pace. Overall permits are running slightly below their trailing three-month average but are still 10.2 percent higher that starts. The entire
gap is in multifamily units, where the three-month moving average of starts
is running a staggering 72.4 percent below the three month average of permits. Some rebound in multifamily starts is likely in coming months. Single-family starts are in the opposite position, with starts running ahead
of permits, both for the month of November and on a three-month moving average basis. The net result is that single-family starts are likely to fall off
in coming months, despite yesterday’s surge in homebuilder confidence.

Source: U.S. Department of Commerce, National Association of Home Builders and Wells Fargo Securities

Wells Fargo Reports: Construction Spending Disappoints in June

Wells_Fargo_Securities_logoConstruction spending fell an unexpected 1.8 percent in June, but the previous month’s data was upwardly revised. Single-family outlays posted its second-straight negative reading. Nonresidential was also weak 

Single-Family Adding to Negative Housing Reports

 The often-revised construction spending monthly headline unexpectedly fell 1.8 percent in June, to a $950.2 billion annual pace. The decline was broad-based showing weakness in single-family, nonresidential and public state & local spending. Single-family outlays fell 1.4 percent on the month and add to the rising number of housing reports that are pointing to a weaker-than-anticipated housing recovery.

Power Outlays Still Weak

 Private nonresidential spending fell 1.6 percent with power still showing weakness following the production tax credit.

 Although the overall decline is disappointing, the monthly figures for multifamily and structure outlays were better than the BEA’s conservative estimate. This means that based on today’s report, we do not expect construction to detract from second quarter real GDP in future revisions.

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Wells Fargo Reports: Employment Costs Accelerate in Q2

Wells_Fargo_Securities_logoPropelled higher by solid gains in wages & salaries and benefit costs, the Employment Cost Index (ECI) increased a stronger-than-expected 0.7 percent in the second quarter. The Fed will notice this pickup. 

Wages & Benefit Costs Jump

Following a soft Q1 performance, total employment costs accelerated in Q2, rising at the fastest quarterly pace since Q3 2008. Year over year, ECI rose at a 2.0 percent pace, consistent with the run-rate over the past four years. Private wages & salaries quadrupled the gain in Q1, rising 0.8 percent on the quarter. Benefit costs jumped 1.0 percent, bringing the year-over-year rate to 2.5 percent, its highest pace since Q1 2012.

An Inflection Point?

The U.S. labor market has improved in the first half of the year with a stronger pace of hiring and an unemployment rate moving closer to full employment. Despite this improvement, the Fed continues to highlight wage inflation’s below-trend performance as evidence that labor market slack is still plentiful. While not currently problematic, Q2’s ECI performance will require the Fed to reassess its labor market and inflation assessment.

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