| Victor Behar, director of the economic department at Bank Hapoalim, and Hapoalim economists
| Israel: a sharp decrease in the number of vacancies in the economy
In November there were 141 thousand people, a decrease of about nine thousand people compared to the month of August. The decline applies to many sectors of the economy, including in the fields of high technology. A decrease in the number of jobs can result from positive developments, i.e. the filling of those jobs, while increasing employment, or from negative developments that express a decrease in the demand for workers.
We estimate that the rapid decrease in vacancies in recent months probably reflects both processes. In technology, this is more an effect of the decrease in activity and the reduction of manpower, while in other service industries the picture is less clear, and perhaps more employees were also added.
The construction start data for the third quarter indicated a slight decrease in the rate of construction starts to the level of 16.9 thousand units, seasonally deducted. The interpretations were that it was a trend reversal that originated from the economic slowdown and increase. The latter certainly do not encourage new construction, but it is still worth examining the data in a slightly longer perspective.
For example, if you look at the scope of construction starts in the last four quarters, they are still on the rise and have reached about 70,000 housing units. Moreover, if we examine previous publications of the CBS on the topic of construction starts, we will find a constant pattern in which the level of starts is updated upwards.
Let’s take the year 2019 as an example, in the first publication (at the beginning of 2020) it was reported that construction starts of 50.8 thousand units. The current publication for 2019 indicates 56.5 thousand units, a gap of about 11%. Assuming that this year’s data will also be updated by 11%, the annual rate of construction starts already exceeds 75 thousand units.
Construction starts do not respond so quickly to changes in the economic environment, these are apartments that went through a long process of planning before building permits were issued. In the last year, 80,200 building permits were issued, so we would bet that if there is a drop in construction starts, it will not be immediate.
As of the end of the third quarter of this year, approximately 165,000 housing units were under construction, a significant increase compared to previous years, which is due to the increase in construction starts and the lengthening of the average construction time. The lengthening of time is affected both by the availability of the production factors and mainly workers, and by the complexity of the projects, for example towers and construction that includes a mix of uses.
| Will the slowdown in construction starts lead to additional price increases?
Maybe, but there is a certain logical fallacy here. An increase in demand for apartments leads to an increase in prices, we already know that. A decrease in demand leads to a decrease in construction starts and again to? So we are doomed that the prices go up in any natural state, it is already less likely.
We estimate that the decline in the purchasing power of the public will worsen even in 2023, in light of the increase in interest rates, and this will curb the increase in apartment prices and we will even see slight price decreases.
Decreasing in the last week at a rate of about 1.5% against the US dollar – the devaluation reflects the high correlation of the exchange rate with stock indices in the world.
In October, the institutions purchased foreign exchange to the extent of 2.9 billion dollars, this despite the fact that the markets were characterized by price increases. This increase was due to the decision to increase the exposure to foreign exchange to a rate of 14.9% of the total assets.
| The price indices for the coming months are high in relation to the seasonality of these months
The indices will be affected by the increase in the price of fuel in December, the expected increase in the price of water in January, an increase in food prices, and the continued increase in rental prices. The new government may try to moderate some of the price increases we mentioned, but it is not yet clear how possible this is.
We estimate that price increases will moderate in the second half of 2023, following a slowdown in economic activity. The inflation forecast is 2.8% for the coming year.
| The interest rate will continue to rise to the level of 3.75%-4.0%
We expect the rate of increases to decrease to 25 points per decision. Inflation expectations are within the target, but in light of the high indices of the coming months, and the continued increase in the annual level of inflation, the central bank currently does not have many degrees of freedom.
Large MCM issuances by the Bank of Israel raised the yield in this instrument to a level of approximately 3.6% for a one-year period. The gap between the MCM yield and the return embodied in interest derivatives narrowed greatly to approximately 0.3% for a one-year period. We believe that the Bank of Israel will not rush to reduce the interest rate, even though during the second half of 2023 inflation will enter the target range.
| global:
The message of the central banks that the interest rates will remain high for a long time, in order to ensure the return of inflation to the target, continued to reflect negatively on the world’s stock markets this past week as well. Inflation may be decreasing, but not at a fast enough rate, and the main inflation generator at this stage is the wage increase – which does not bode well.
In the weekly summary, the and indices decreased by rates of 0.2% and 1.9% respectively. In Europe, an index rose by 0.3% in the past week, but in Asia, most stock indices registered declines.
The in Japan fell by 4.7%, the stock index in China eroded by 3.2%, and the indices in South Korea and Taiwan fell by about 2% on average.
In the commodity market, the price of a barrel of oil rose by about 7.0% in the last week to the level of 84 dollars, and the price index for all commodities also recorded a 2.5% increase in the last week.
| USA: The published economic data were mostly good, but there is a slowdown in private consumption
For the third quarter, they were revised upward from 2.9% to 3.2%, among other things due to the upward revision of (from 1.7% to 2.3%). In the labor market there was a surprising decrease in the new weekly requirements.
Household incomes increased by 0.4% in November, a higher rate than expected, but for the first time in months household expenses remained unchanged in real terms in November. Orders fell in November by a sharp rate of 2.1%, mostly due to a drop in vehicle orders.
Consumer confidence indices recorded an increase this month. An index of the Conference Board rose above the forecast to the highest level since April. The increase was recorded in both the current index and the expectations index, although the level of the expectations index is still at a low level that is typical of recessionary situations. A University of Michigan index also rose last month.
| In the housing market in the USA, the decline in activity continues, and prices are expected to rise and fall
Against the backdrop of the high and sharp increase in mortgage interest rates over the past year, the decline in activity in the housing market continued. Existing home sales fell sharply by 7.7% in November, down 35% in the last 12 months, to the lowest level since December 2011. It was the tenth straight month of sales declines.
There was a surprising increase in sales in November, but their level is currently very low compared to the past. Construction starts and the number of building permits also continued to decrease in November. decreased by 0.5% and completed a decrease of about 21% from the peak in April, and building permits decreased in November by 11.2%, a much sharper drop than the forecasts, and these completed a decrease of 22% in the last 12 months.
The Case Shiller index for house prices in the twenty largest US cities has already fallen by 3.3% since June, and according to consensus estimates in Bloomberg, it is expected to fall by an additional 1.2% in October.
| A decrease in PCE inflation, but the level is still significantly higher than the target
The indicator preferred by the Fed, the core index component increased in November by 0.2% (more than expected) and in the last 12 months the increase in the index moderated to 4.7%. The PCE index increased by 0.1%, and in the last 12 months it increased At 5.5%, the lowest since October 2021.
Despite the slight drop, the PCE index is still significantly higher than the 2.0% target to which the Fed wants to drop. In the last week, there was an increase in government bond yields along the entire curve.
The yield on US government bonds increased from 4.18% to 4.32%, and the yield increased from 3.48% to 3.75% for the year.
| Europe: signs of the moderation of inflation together with an improvement in consumer confidence led to increases in stock indices
New data indicated a moderation in price increases in November in Germany, France and Spain, mainly as a result of a drop in natural gas and electricity prices. At the same time, there was an improvement in the consumer and business confidence indices in Germany and Italy in December. in the UK,
For the third quarter, they were updated downwards, a contraction of about 1.2% in annual terms, due, among other things, to an update regarding the output of industry and construction. Investment in fixed assets decreased by 2.5%, above and beyond the first estimate that indicated a decrease of 0.5%.
| Japan: A surprising and significant change in central bank policy
Until now, the central bank has set an upper limit of 0.25% for the yield to maturity on government bonds, but from now on the upper limit has been moved upwards to 0.50%. The interest rate in Japan is still negative at the level of 0.1%, but the move probably signals a less expansionary policy in the future.
In response to this, the 10-year yield reached 0.4% towards the end of the week. The change also led to strengthening.
| China: Corona has returned in a powerful way
According to unofficial estimates, about 250 million citizens were infected in the first 20 days of December, this in light of the easing of the closure policy. The health system is under great pressure. Meanwhile, the World Bank has significantly reduced China’s rate to 2.7% this year and 4.3% in 2023. This, in view of the spread of the Corona virus and the difficulties in dealing with the real estate crisis.
The confidence indices of small businesses continued to fall, and it is likely that this negative trend will strengthen following the spread of the corona virus. It is likely that the government will implement budgetary expansion measures in order to encourage economic activity. It is also expected that the central bank will act in an expansionary manner, especially with measures that will encourage the demand for private consumption.
PDF document: The complete weekly review of the working economists
The authors of the review are Bank Hapoalim economists. The review is based on publicly available data and information. The data and information used to prepare it were assumed to be correct, and this without Bank Hapoalim Ltd. performing independent tests in relation to the data and information. There is no verification or confirmation of their correctness in this review. The bank and its employees are not responsible for the completeness or accuracy of the said data or for any other omission, error or deficiency in the document. This review is for informational purposes only, and does not claim to be a complete analysis of all the facts and all the circumstances related to what is stated therein. The information on which the review is based and the opinions therein may change from time to time, without any further notice or publication. This review is not adapted to the investment goals or to his personal and unique needs of each investor. This article should not be considered as investment advice or a substitute for investment advice that takes into account the data, needs and special investment goals of each person, and you should not act according to what has been said, except after receiving personal advice that takes into account the needs, goals and personal data of each investor, and after exercising consideration Independent opinion.