Comparing new housing data to projections, reviewing the September SEP

  1. Housing Starts Projections
  2. FOMC September SEP

Housing Starts Projections

A few weeks ago, I finished a project in RStudio which modeled U.S. housing starts using building permits and other time-series components. Since we have new data this week, I thought it might be interesting to compare it to my forecast.

Here’s a reminder of what my projections looked like for July 2022–23:

The red dot represents the latest data point for August 2022 (1.575 million starts)

While the new data is within the range of the forecast errors, it does not necessarily mean the model is ‘right’ or ‘wrong’. What will ultimately validate my projections for housing starts will be the trajectory of building permits, since the forecast was heavily influenced by the assumption of a linear decline in building permits over the next 12 months. Building permits declined 168,000 from July to August.

Jerome Powell — Chair, Federal Reserve // September 21, 2022 Press Conference

FOMC September SEP

Real GDP Growth — One of the most notable changes between the Federal Reserve’s Summary of Economic Projections (SEP) for September relative to June was the change in real GDP for 2022. This is primarily due to the fact that the year is more complete than it was back in June (the Fed has more information about the growth of the economy than it did in June, particularly the quarters of negative GDP growth). Overall, participants seem less optimistic about real GDP growth in 2023 and 2024 than they did in June. By 2025, the board believes real GDP growth will return to its longer run average of 1.8%.

Unemployment — Participants are also less optimistic about the unemployment rate for the next two years than they were in June — projections are ~50 basis points higher than they were 3 months ago.

PCE inflation — Participants now project personal consumption expenditures to be 10–20 basis points (0.10–0.20%) higher in 2023 and 2024 than originally projected in June (Median = 2.8% for 2023, 2.3% for 2023)

Core PCE inflation — Interestingly, projections for core PCE for 2023 are now higher than PCE inflation. In June, participants expected both 2023 PCE measures to be roughly the same. However, the new projections seem to indicate that food and energy prices will be a relief to consumers in the next two years with elevated prices in other areas of the economy.

Fed Funds Rate — The committee believes the policy rate will be between 3.9 and 4.6% by the end of 2022, between 3.9% and 4.9% in 2023, and no higher than 4.6% in 2024. The median projections for the Fed Funds rate for 2022, 2023, and 2024 are 4.4, 4.6, and 3.9, respectively. These projections are 1%, 0.8%, and 0.5% higher than they were in June for the same years — evidence the Fed is now more hawkish than 3 months ago.

That’s it for this week! Stay tuned for another econometrics project using RStudio in the coming weeks.