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Prospects daily: U.S. housing sector continues to face cold headwinds.

Global Macroeconomics Team's picture

Important developments today:

1.  U.S. housing sector continues to face cold headwinds.

2.  China continues to reduce holdings of U.S Treasuries.

3.  German investor confidence declines for a sixth straight month.



China continues to reduce holdings of U.S Treasuries. China and Japan, the two largest foreign holders of U.S. government debt, cut back their holdings of Treasuries in January, as foreign demand for U.S. long-term assets eased to $19 billion from $63 billion in December. China reduced its stock of Treasury bonds to $889 billion in January from $894.8 billion in the previous month, posting a third consecutive decline, according to the Treasury Department. The January level was the lowest in eight months, the longest such stretch of diversification of China’s reserves since the end of 2007.

But China remains the biggest single holder of U.S. government debt. Japan was far behind in second position with $765.4 billion, down $300 million from its December levels. Meanwhile, oil-exporting countries increased their Treasury holdings by $17 billion in January to $3.71 trillion, possibly an indication of a pick-up in Saudi Arabia’s reserves (which climbed $4 billion in January) as well as demand for more liquid assets among other oil exporters. And U.K. Treasury holdings of U.S. Treasuries in January increased by $28 billion to $206 billion, with some of these purchases made for the account of the Chinese government.



source: Department of Commerce.


U.S. housing sector continues to face cold headwinds. The number of new homes breaking ground- as well as the number of permits issued- declined in February, as severe winter storms across most of the Midwest and Northeast of the country brought construction activity to a grinding halt. Housing starts slowed to an annual pace of 575,000 in February, a decline of 6% from the previous month. At the same time permits for new construction dipped 1.6% in the month, following a 4.7% decline in January, to an annual rate of 612,000 homes, faring slightly better than median expectations for a 600,000 annual pace.

Demand for housing, which escalated prior to the initial expiration deadline of the federal tax credit program, has been slow to recover since the program was extended in November. However, as weather patterns improve and the new tax credit deadlines come nearer, demand for homes is likely to pick up. The National Association of Realtor’s ‘Affordability Index’, measuring the overall cost of an existing home to the “average American family” peaked in July 2009 and has declined through latest readings for January.

German investor confidence declines for a sixth straight month. Investor confidence in Germany measured by the ZEW center’s survey of investors and analysts signaled expectations of stagnation in the German economy over the near term. The ZEW index slipped for a sixth month running, from 45.1 in February to 44.5 in March, in line with median market expectations. Investor expectations were most likely dimmed by January’s export report, which showed a sharp 6.3% decline in German extra-EU shipments (m/m), a key driver for the economy’s revival. While recent index movements have been discouraging, it is important to note that the ZEW has climbed back to its pre-crisis average since the fourth quarter of 2009.



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