Pollack Snapshot: A quick analysis of important economic data released over the last week

By: Elliott Pollack, The Monday Morning Quarterback 

Last Wednesday, the Federal Reserve voted to raise interest rates by a quarter percentage point to a range between 0.25% and 0.50%. This was the first rate increase since 2018 and the Fed penciled in six more increases by the end of the year. This will likely lift the rate to close to 2.0%, slightly higher than the prevailing rate prior to the pandemic. Projections show the rate rising to 2.75% by the end of 2023, much faster than was originally anticipated last December.

The Fed continues to be concerned with inflation due to the hot job market and wages rising at their fastest pace in years. The tight labor market is particularly viewed as unhealthy. The benchmark 10-year Treasury note, the leading indicator for mortgage rates, rose to 2.185%. Mortgage rates have been rising based on the anticipated rate increases by the Fed. The March 17 30-year mortgage rate according to Freddie Mac was 4.16%, an increase of 35% from a year ago and 8% from the prior week. Mortgage interest rates will continue to increase over the course of the year. Despite rising interest rates, home prices and rents, there is still a severe housing shortage and affordability has become a problem for many low and moderate income households.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 6.1% in January from a year earlier. Core inflation, which excludes food and energy, rose 5.2%. Fed officials expect core inflation will end the year at 4.1% but rate increases could bring inflation to as low at 2.6%. However, there in much risk in the national and world economies due to the Ukraine war. Sanctions by the West against Russia could result in higher energy and commodity prices. On top of the sanctions, new pandemic lockdowns in China could further impact global supply chains.
The Fed has a difficult road ahead. Some economists believe the Fed may feel pressure to lift rates to levels that tip the economy into a recession. This could occur if there is growing evidence of a wage-price spiral in which workers coping with climbing prices demand more pay increases, leading businesses to continue raising prices. The coming months will provide an indication of how the Ukrainian war and lingering pandemic headwinds will affect the economy.
U.S. Snapshot:
  • The Conference Board Leading Economic Index grew 0.3% in February, following a decline of 0.5% and an increase of 0.8% in January and December, respectively. February’s increase does not capture the entire impact of the Russian invasion of Ukraine. While labor shortages, supply chain issues, war, and increase in interest rates are occurring at the same, the Conference Board has lowered their growth projection down to 3.0% in 2022.
  • Retail sales rose 0.3% in February, down from the 4.9% monthly seen in January. As expected, consumers spent more on gas (5.3% increase) and services. Retail sales are not adjusted for inflation, and the increase is in part reflecting the higher prices consumers are paying.
  • Industrial production continues to signal growth in manufacturing despite bottlenecks and supply issues. Industrial production increased to 103.6% up 7.5% from a year ago.
  • Interest rates were over 4% for the first time since May 2019. The week ending March 17th, the average was up to 4.16% up 34.6% from a year ago.
  • Homebuilders’ confidence waned in March. The level dropped to 79 and the third lowest since 2020. The confidence level remains well above the 50 threshold.
  • Building permits declined 1.9% to a SAAR 1.86 million in February. The number of starts increased 6.8%. Single family starts rose by 5.7%.
  • Existing home sales were down 2.4% from a year ago, while single family sales were down 2.2%. Prices increased 15% for all existing homes and 15.5% for single family. Housing affordability will continue to fall as prices continue to increase and interest rates continues to increase.
Arizona Snapshot:
  • New housing permit data from rlbrownreports.com shows single family building permits for the first two months of 2022 in Greater Phoenix are flat compared the same period last year. The median new home price now stands at $448,200 with an average price of $519,600. In the resale market the median home price for February is $440,000.
  • In Tucson, single family permits year-to-date are down 9.7% compared to last year. The median new home price is $397,500 and median resale price is $323,000.


Landsea Homes Breaks Ground on Three New Communities in Arizona

More than 600 High Performance Homes will soon be available for homebuyers to purchase   

Phoenix, Arizona — Landsea Homes Corporation (Nasdaq: LSEA) (“Landsea Homes” or the “Company”), a publicly traded residential homebuilder, announced today that it has officially broken ground on three new communities in Arizona including El Cidro in Goodyear, Rev at Eastmark in Mesa and The Villages at North Copper Canyon in Surprise.

“We’re excited to officially begin work to bring more thoughtfully designed High Performance homes to potential homebuyers in the greater Phoenix metro area,” said Kaylee Smith, Arizona Division President, Landsea Homes. “There will be a variety of home types at El Cidro, Rev at Eastmark and The Villages at North Copper Canyon to meet differing needs and lifestyles. Additionally, an appealing array of amenities at each community and beautiful natural surroundings will allow residents to truly ‘live in their element’.”

  • El Cidro is a new community in Goodyear featuring the small-town charm of single-family homes in two neighborhoods, the Peak Series and Valley Series. These 201 single-family homes range from 1,776- to 3,240-square-feet with options for three to six bedrooms and two to five bathrooms. Sales are expected to begin in May.

Residents will enjoy in-town living at El Cidro with picturesque views and easy access to I-10. The city of Goodyear has abundant city parks, a state of the art 86-acre recreation campus complete with a community park and aquatic center. Outdoor enthusiasts are close to the Sierra Estrella Mountains, where hiking and biking trails abound.

Goodyear is just 20 minutes west of central Phoenix with immediate access to major transportation modes and arteries.

  • The Villages at North Copper Canyon will include 315 one-and two-story single-family homes in two of its neighborhoods, the Peak Series and Canyon Series. Unique and attractive floorplans range from 1,315- to 3,240-square-feet with options for two to five bedrooms, two to three bathrooms, and the ability to convert three-car garages into extra rooms or storage. All floorplans will feature open concept designs perfect for individuals and families of all sizes and ideal for indoor-outdoor living. Sales are expected to begin in April.

Residents will enjoy spending time at the great lawn, playgrounds, pool, splash pad and BBQ areas.

Landsea Homes has sold more than 700 homes in North Copper Canyon since 2018.

Surprise is in the northwest Phoenix Metropolitan area, just 45 minutes from Downtown Phoenix and the Sky Harbor International Airport. It’s one of the 10 largest cities in Arizona, and residents and visitors enjoy the small-town feel with big-city amenities. Residents will be able to take in the beauty of the nearby White Tank Mountains and Lake Pleasant regional parks.

  • Rev at Eastmark, Landsea Homes’ newest neighborhood in the Eastmark master plan will consist of 90 thoughtfully designed and modern single-family homes in four different floorplans. The homes will range from 1,810- to 2,410-square-feet with options for three to five bedrooms and two-and-a-half to three bathrooms. Select floorplans will feature LiveFlex® options for a study or loft. Sales are expected to begin in April.

Located in the heart of Mesa, Eastmark values connectivity and engagement with its top-rated schools, beautiful neighborhoods, and innovative amenities. The large-scale community of 3,200 acres integrates new homes with employment, education, recreation, and commerce.

Homes at all three communities will contain Landsea Homes’ High Performance Home features including smart home automation technology utilized by the Apple HomeKit™ environment and energy savings to make life at home healthier and more comfortable. The smart home automation features include an Apple® HomePod mini™, wireless network Internet throughout the home, entry door locks, thermostat control, garage door opener control, light dimmer switches, doorbell camera pre-wire, and high-touch customer service with an individualized training session.

For more information about Landsea Homes, visit http://www.landseahomes.com.


Dollar General Q4 profit falls despite higher sales; to open 1,110 stores

Dollar General’s fourth-quarter sales rose 2.8% to $8.65 billion.

CSA is reporting Dollar General reported upbeat guidance for the next fiscal year even as it warned of a challenging first quarter.

The discount retailer also reaffirmed its plans to execute 2,980 real estate projects in 2022, which include 1,110 new stores (up from 1,050 last year) along with 1,750 remodels and 120 store relocations. The company is also planning to open its first international stores, with 10 locations in Mexico.

Dollar General said that it expects same-store sales to fall 1% to 2% in its first quarter, with earnings per share of $2.25 to $2.35, below the $2.75 analysts were looking for. The company said it anticipated a challenging first quarter “due to elevated cost pressures, ongoing supply chain disruptions, and the prior year sales and gross margin comparison.” However, it gave upbeat guidance for the full fiscal year, with sales and earnings that exceeded analysts’ estimates.

The retailer posted net income of $597.4 million, or $2.57 per share, for the quarter ended Jan.28, down from $642.7 million, or $2.62 per share, last year.

Sales rose 2.8% to $8.651 billion from $8.415 billion last year. The rise in sales came from contributions from new stores, which was partially offset by a decline in same-store sales amid lower customer traffic, Dollar General said.

Same-store sales fell 1.4% but increased 11.3% on a two-year stack basis. Same-store sales in the fourth quarter of 2021 declined in the apparel, consumables, seasonal, and home products categories.

For the full year, net sales increased 1.4% to $34.2 billion. The company’s net income declined 9.6% to $2.4 billion.

During the year, Dollar General completed the initial rollout of DG Fresh, executed more than 2,900 real estate projects, including the opening of its 18,000th store and 50 standalone Popshelf  locations and launched new initiatives focused on health and international expansion.

“Despite a more challenging than expected operating environment, our teams remained focused on executing our operating priorities and advancing our strategic initiatives, which we believe position us well for solid sales and profit growth in 2022 and beyond,” said Todd Vasos, CEO. “Despite a more challenging than expected operating environment, our teams remained focused on executing our operating priorities and advancing our strategic initiatives, which we believe position us well for solid sales and profit growth in 2022 and beyond.”

For fiscal 2022, Dollar General expects sales growth of 10%, same-store sales growth of 2.5% and earnings per share growth of 12% to 14%. Analysts had estimated sales of $36.746 billion, implying 7.3% growth, a same-store sales increase of 2.5% and earnings per share of $11.09, implying 9.1% growth.

The company said it is raising its quarterly dividend by 31%, to 55 cents a share.

Dollar General operated 17,915 stores in 46 states as of October 29, 2021.

Read full article here.