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Economic Snapshot: Builder confidence at 12-year high

By Brianna Liestman

The National Association of Home Builders/Wells Fargo Housing Market Index rose in March to its highest level in nearly 12 years. Current sales conditions and sales expectations for the next six months are both very positive indexes among homebuilders.

Housing Market Index

Builder confidence in the market for newly built single-family homes jumped six points to 71. This is the highest reading since June 2005.

“Builders are buoyed by President Trump’s actions on regulatory reform, particularly his recent executive order to rescind or revise the waters of the U.S. rule that impacts permitting,” said NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas.

All three HMI components posted gains in March. The component gauging current sales conditions and the index charting sales expectations in the next six months are both at a level of 78, rising seven points and five points, respectively. The component measuring buyer traffic jumped eight points to 54.

Looking at the three-month moving averages for regional HMI scores, the Midwest increased three points to 68 and the South rose one point to 68. The West dipped three points to 76 and the Northeast edged one point lower to 48.

“While builders are clearly confident, we expect some moderation in the index moving forward,” said NAHB Chief Economist Robert Dietz. “Builders continue to face a number of challenges, including rising material prices, higher mortgage rates, and shortages of lots and labor.”

Small business optimism

The National Federal of Independent Business Small Business Optimism Index fell 0.6 points in February to 105.3, yet remains at one of its highest readings in 43 years.

The slight decline follows the largest month-to-month increase in the survey’s history in December and another uptick in January.

Three of the 10 components increased, sex declined and one was unchanged. Despite a small decrease, nearly half of owners expect better business conditions in the coming months.

The job openings component reached its highest level since December 2000, but more owners reported difficult finding qualified workers to fill open positions. NFIB Chief Economist Bill Dunkelberg said that the scarcity of qualified workers is pressuring owners to raise compensation to retain and attract good employees. Twenty-six percent of small business owners reported raising compensation, one of the highest readings since February 2007.

“Many small business owners are being squeezed by this historically tight labor market,” he said. “They are not confident enough to raise prices on consumers, which limits how much they can increase compensation and makes them less competitive in attracting qualified applicants.”

Business owners reporting higher sales improved four percentage points, rising to the first positive reading since early 2015. The percent of owners expecting higher real sales fell three points to a net 26 percent. This follows a 20-point rise in December and remains positive.

Capital spending among small business owners rose two points to 62 percent, the second highest reading since 2007. Owners reported spending on new equipment, vehicles and improvement or expansion of facilities. The percent of owners planning capital outlays dropped one point to 26 percent. NFIB President and CEO Juanita Duggan said after years of ball-and-chain regulation and poor economic growth, small businesses are ready to invest.

“Small businesses will begin to turn optimism into action when their two biggest priorities – healthcare and small business taxes – are addressed,” she said. “To small business, these are both taxes that need reform. It is money out the door that strangles economic growth.”

Employment situation

Total nonfarm payroll employment increased by 235,000 in February and the unemployment rate was little changed at 4.7 percent, according to the U.S. Bureau of Labor Statistics. Employment gains occurred in construction, private educational services, manufacturing, healthcare and mining.

The number of unemployed persons changed little in February, at 7.5 million. The unemployment rate was little changed from January but is down from 4.9 percent in February 2016.

The number of long-term unemployed was essentially unchanged at 1.8 million in February and accounted for 23.8 percent of the unemployed. Over the year, the number of long-term unemployed was down by 358,000.

The number of persons employed part time for economic reasons was little changed at 5.7 million in February.

In February, 1.7 million persons were marginally attached to the labor force, little different from the previous year. Among the marginally attached, there were 552,000 discouraged workers in February, also little changed from February 2016.

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