| By Yonatan Katz and Economist Leader Capital Markets
The past week has been characterized by gains in stock markets amid estimates that the omicron variant is less risky (but more contagious) as the number of serious patients in most countries does not increase. In addition, most economic data were positive, including an increase in orders for sustainable construction products, an increase in home sales and an increase in private consumption.
| Macro Israel: The “Tense” Labor Market
- The broad unemployment rate fell to 6.5% in November from 7% in October.
- In November, 92,000 employees were added, leaving 58,000 jobs until full employment. In contrast, the number of job vacancies stands at 143,000 jobs.
- In August-October, industrial production expanded by 3.6% on an annualized basis, following a 4.7% increase in the previous three months.
- In August-October, revenue in the economy’s industries increased by 10.8%, especially in the services industries.
| Inflation environment:
- Oil prices rose again amid optimism in the markets about the impact of the omicron.
- In the last week, the shekel depreciated by 1.1% against the dollar and depreciated by 1.2% against the euro.
- The price of electricity is expected to rise by 4.9% in February.
- The dairy products under supervision are expected to rise soon by 3% -4%.
- On February 22, Israel is (probably) expected to join MSCI Europe, which is expected to increase capital movements and the pressure to appreciate in shekels.
- Following the publication of the low November index, the average forecast for inflation forecasts one year ahead is 1.8%, similar to the previous month.
| US: Positive data as inflation rises
- In November, disposable income rose by 0.4% and private consumption by 0.6% (as expected).
- Core inflation rose by 0.5% (expected to be 0.4%) and rose by 4.7% y / y.
- Orders for durable goods rose 2.5% above expectations of 1.5%.
- Sales of second-hand homes rose by 1.9% and sales of new homes by 12.4%.
- In December, the consumer confidence index rose by 3.9 points (the decline was expected) due to an improvement in the labor market. Household inflation expectations fell to 6.9% from 7.3% a month ago.
| Europe:
- In December, the consumer confidence index fell to 8.3 from 6.8, due to concerns from the Omicron.
| Bond market: preference for shekel channels
- Despite a return to optimism in the stock markets, the rise in bond yields was moderate.
- In the last week, inflation expectations inherent in the bond market have fallen slightly.
- We continue to prefer the shekel channel and believe that the negative spread vis-à-vis the United States is expected to expand, against the background of low inflation and a low deficit in Israel relative to the United States.
| Zoom In: When will housing prices calm down?
- It has been two years since the number of construction starts matched demand and perhaps even beyond.
- At the same time, the number of finished apartments continues to be much lower.
- Meaning: a record number of apartments in all stages of construction of 139,000 units.
- An increase in the number of completed dwellings in 2022 and 2023 is expected to moderate the pressure for price increases, both the prices of dwellings for purchase and rents.
- The prices of apartments for purchase will also be affected by the increase in financing, starting in the second half of 2022.
- An increase in the supply of apartments in the coming years is expected to limit the rate of increase in rental prices in the index, thus supporting relatively moderate inflation.
| Macro Israel: The labor market has become more “tense”
After an increase of 92,000 in November, the labor market is only 58,000 employees far from full employment (or the employment rate in 2019). In contrast, the number of job vacancies remained at a high level of 143,000 jobs in November. There are two trends: a decrease in the potential supply of future employees and at the same time: an increase in the demand for workers by the business sector. As a result, we raised the wage increase forecast in the model to 5.0% in 2022 from 4.5%.
At the same time, meanwhile, the total wage payments in the economy (an estimate of the purchasing power of households) are not rising significantly, and even lower than the level that would have been expected had it not been for the corona crisis. Therefore, in the short term, the moderate increase in the purchasing power of the public does not pose an inflationary threat. Looking ahead, wage pressures and full-time employment are expected to support a sharper rise in household purchasing power.
What is the effect of the omicron on the short term? On the one hand, supply disruptions are expected (closure of seaports in China, etc., transport prices have already risen again), but a decline in commodity prices (oil in particular) is also expected in anticipation of a moderation in world economic activity.
Fear of locksmiths in malls may lead to the end of season prices in clothing prices. It is not clear whether the CBS will measure the “travel abroad” section in January or return to the imputation method according to the change in the consumer price index. Of course, in the background there is uncertainty about the continued reaction of the shekel. Assuming the fifth wave passes one to two months later, these are not long-term effects.
Some important data will be published this week: Monday: Employment data for November, Tuesday: Services data (October), Credit card purchases (November), Thursday: Sales in the retail chains.
| USA: Stability in real consumption
In November, disposable income in US households rose by 0.4% (expectations were 0.5%), after an increase of 0.5% in the previous month. In the last 12 months disposable income rose by 7.4%, of which it rose by 8.2 %.
The nominal rose 0.6% (similar to expectations), following a 0.7% increase in the previous month. In the last 12 months, private consumption has risen by 13.5%, or about 6.3% in real terms.
Consumption in November was concentrated in consumption of services (an increase of 0.9%) compared with a moderate increase in consumption of goods (0.1%). This month, real consumption was nil due to a similar increase in private consumption prices.
This is the fourth month in a row that consumption has been higher than income, so the savings rate has dropped to 6.9% (from 7.6%). American households are gradually “eating” the accumulated savings, some of the huge transfer payments that have been received from the authorities.
In the short term of one to two months, a moderation in consumption is expected against the background of concerns from the Omicron and the termination of tax benefits for parents with children (a type of child allowance). Still, looking at 2022, Significant excess savingsexpected Allow households to continue to increase consumption
Rose 0.6% and 5.7% a year ago. Core inflation PCE Increased by 0.5% and 4.7% a year ago (acceleration from 4.2% a month ago). In November, expectations were for moderate core inflation of 4.5%. Just two weeks ago, Fed members predicted core inflation PCE Of 4.4% at the end of the year (and 2.7% at the end of 2022). The Fed seems to continue to be behind the curve, Which will demand aggressively in 2022 (and in the coming years), beyond what is priced in the markets.
Important macro data to be published worldwide: Tuesday: USA: Case-Shiller (October). Thursday: US: Several new. Friday: China: Industry (December).
| Zoom In: When will apartment prices calm down?
- It has been two years since the number of construction starts matched the demand and maybe even beyond the current demand. Looking back over the year, the number of construction starts has reached 56,000 units and it is known that the CBS almost always corrects the start-up data upwards. We will probably reach 60,000 construction starts this year. Construction will continue to rise towards 65-70 thousand units.
- What about current demand? Looking at the number of new households shows great volatility, from 7-807 thousand in the years 2018-2019 and a decrease to 43 thousand in 2020. The average increase from 2013 is 56 thousand. Apparently the Corona crisis in 2020 brought young people back to their parents ’homes. According to the prevailing assumption, the population increase (of about 1.9%) is an increase of 175,000 people in 2021. Assuming that the average household is about 3-3.2 people, 55-58 thousand new households reach a year, slightly less than the number of starts Expected construction this year and in 2022.
- At the same time, the number of finished apartments continues to be much lower, reaching 45.8 thousand in the last year after 49.2 thousand in 2022 and 52.3 thousand in 2019. It is important to note that more accurate construction completion data are almost never refined by the CBS:
- This means that there is a record 139,000 housing units under construction in the third quarter of 21, an increase from 129,000 a year ago.
- It is likely that the lengthening of the construction time is due to a shortage of workers in the industry. The number of job vacancies in the construction industry rose to 11.1 thousand on November 21 compared to 9.4 thousand jobs on average in 2019 (the eve of the corona), an increase of 18%. At the same time, in 2018 there were 10.9 thousand vacancies in the construction industry, so this is not a significant shortage of workers in the industry. There may be a shortage of building materials due to “supply disruptions”, but the increase in the price of building materials (10% year ago) does not necessarily indicate a shortage. It is possible that construction today is more “complex” with sophisticated systems, which prolongs the construction time.
- From 2015 until today, the number of construction starts corresponds to the current demand, but the number of finished apartments lags far behind. A faster increase in the number of completed dwellings in 2022 and 2023 is expected to moderate the pressure for price increases, both in the prices of dwellings for purchase and in the prices of dwellings for rent. Assuming that the construction time in Israel is on average 3 years, then in the coming years the number of finished apartments is expected to increase sharply:
- Of course, the prices of apartments for purchase will also be affected by the increase in financing, starting in the second half of 2022 and especially in 2023, when the Bank of Israel is expected to start and long-term yields will also increase due to a more aggressive interest rate hike by the Fed.
- Regarding rental prices (which are measured in the index), we still expect an increase to a rate of 3.5% in 2022, but in the coming years some moderation towards 3% -2.5% is expected. Rental prices will also be affected by the rate of wage increase. This means that an increase in the supply of apartments in the coming years will limit the rate of increase in rental prices, which will support maintaining a relatively moderate inflation environment.
PDF Document: Weekly Macro Review of Leader Capital Markets Economists
The authors are economists at Leader Capital Markets. The review is based on information published to the general public by the companies reviewed in it, as well as assessments and estimates and other information that Lider & Co. Investment House Ltd. (“Lider & Co.”) assumes is reliable, without conducting independent tests in relation to the information. Leader & Co., the authors of this review and its editors are not responsible for the reliability, completeness, accuracy of the information contained in it or for any omission, error or other defect in it. Rely on the information contained therein and is not subject to independent discretion and professional advice, including an investment advisor whose advice takes into account the data and special needs of each person. May hold the securities and / or financial assets described in the review.