Sunday, June 24, 2018

Monday: New Home Sales

by Bill McBride on 6/24/2018 08:47:00 PM

Schedule for Week of June 24, 2018

• At 8:30 AM ET, Chicago Fed National Activity Index for May. This is a composite index of other data.

• At 10:00 AM, New Home Sales for May from the Census Bureau. The consensus is for 665 thousand SAAR, up from 662 thousand in April.

• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for June.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 10, and DOW futures are down 82 (fair value).

Oil prices were up over the last week with WTI futures at $68.43 per barrel and Brent at $73.95 per barrel.  A year ago, WTI was at $45, and Brent was at $46 - so oil prices are up about 50% year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.83 per gallon. A year ago prices were at $2.25 per gallon - so gasoline prices are up 58 cents per gallon year-over-year.

Update: For Fun, Stock Market as Barometer of Policy Success

by Bill McBride on 6/24/2018 10:03:00 AM

By request, here is an update to the chart showing market performance under Presidents Trump and Obama.

Note: I don't think the stock market is a great measure of policy performance, but some people do - and I'm having a little fun with them.

There are some observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

Update: And from White House chief economic advisor Gary Cohn on December 20, 2017:

"I think there is a lot more momentum in the stock market. ... "The stock market is reflecting the reality of what's going in the business environment today," said Cohn, director of the National Economic Council. "There is going to be a continuation [of the] rally in the equity markets based on real underlying fundamentals of the U.S. economy ... as well as companies having more earnings power because of lower tax rates."
For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Stock Market Performance Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 21.3% under Mr. Trump - compared to up 36.0% under Mr. Obama for the same number of market days.

Saturday, June 23, 2018

Schedule for Week of June 24, 2018

by Bill McBride on 6/23/2018 08:11:00 AM

The key economic reports this week are May New Home Sales and the third estimate of Q1 GDP.

Other key indicators include Personal Income and Outlays for May, and Case-Shiller house prices for April.

For manufacturing, the Dallas, Richmond, and Kansas City Fed manufacturing surveys will be released this week.

----- Monday, June 25th -----

8:30 AM ET: Chicago Fed National Activity Index for May. This is a composite index of other data.

New Home Sales10:00 AM: New Home Sales for May from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the April sales rate.

The consensus is for 665 thousand SAAR, up from 662 thousand in April.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for June.

----- Tuesday, June 26h -----

Case-Shiller House Prices Indices9:00 AM ET: S&P/Case-Shiller House Price Index for April.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the January 2018 report (the Composite 20 was started in January 2000).

The consensus is for a 6.8% year-over-year increase in the Comp 20 index for April.

10:00 AM ET: Richmond Fed Survey of Manufacturing Activity for June.

----- Wednesday, June 27th -----

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.6% decrease in durable goods orders.

10:00 AM: Pending Home Sales Index for May. The consensus is for a 0.7% increase in the index.

----- Thursday, June 28th -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 218 thousand the previous week.

8:30 AM: Gross Domestic Product, 1st quarter 2018 (Third estimate). The consensus is that real GDP increased 2.2% annualized in Q1, unchanged from the second estimate of 2.2% in Q1.

11:00 AM: the Kansas City Fed manufacturing survey for June. This is the last of the regional surveys for June.

----- Friday, June 29th -----

8:30 AM: Personal Income and Outlays for May. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a reading of 60.1, down from 62.7 in May.

10:00 AM: University of Michigan's Consumer sentiment index (Final for June). The consensus is for a reading of 99.2, down from 99.3.

Friday, June 22, 2018

Duy: "No, A Recession Is Not Likely In The Next Twelve Months"

by Bill McBride on 6/22/2018 12:33:00 PM

A few excerpts from Professor Tim Duy at Fed Watch: No, A Recession Is Not Likely In The Next Twelve Months. Why Do You Ask?

Headlines blared the latest recession warning today, this time from David Rosenberg of Gluskin Sheff & Associates. The culprit will be the Fed:
“Cycles die, and you know how they die?” Rosenberg told the Inside ETFs Canada conference in Montreal on Thursday. “Because the Fed puts a bullet in its forehead.”
I get this. I buy the story that the Fed is likely to have a large role in causing the next recession. Either via overtightening or failing to loosen quickly enough in response to a negative shock.

And I truly get the frustration of being a business cycle economist in the midst of what will almost certainly be a record-breaking expansion. Imagine a business cycle economist going year after year without a recession to ride. It’s like Tinkerbell without her wings.

But the timeline here is wrong. And timing is everything when it comes to the recession call. Recessions don’t happen out of thin air. Data starts shifting ahead of a recession. Manufacturing activity sags. Housing starts tumble. Jobless claims start rising. You know the drill, and we are seeing any of it yet.

For a recession to start in the next twelve months, the data has to make a hard turn now. Maybe yesterday. And you would have to believe that turn would be happening in the midst of a substantial fiscal stimulus adding a tailwind to the economy through 2019. I just don’t see it happening.
Bottom Line: The business cycle is not dead. The future holds another recession. But many, many things have to start going wrong in fairly short order to bring about a recession in the next twelve months. It would probably have to be an extraordinary set of events outside of the typical business cycle dynamics. A much better bet is to expect this expansion will be a record breaker.
CR Notes: I agree completely with Duy. I don't see a recession starting any time soon.

According to NBER, the four longest expansions in U.S. history are:

1) From a trough in March 1991 to a peak in March 2001 (120 months).

2) From a trough in June 2009 to today, June 2018 (108 months and counting).

3) From a trough in February 1961 to a peak in December 1969 (106 months).

4) From a trough in November 1982 to a peak in July 1990 (92 months).

So the current expansion is the second longest in U.S. history, and it seems very likely that the current expansion will surpass the '90s expansion in the Summer of 2019.

As I noted last year in Is a Recession Imminent? (one of the five questions I'm frequently asked)
Expansions don't die of old age! There is a very good chance this will become the longest expansion in history.
A key reason the current expansion has been so long is that housing didn't contribute for the first few years of the expansion.  Also the housing recovery was sluggish for a few more years after the bottom in 2011.  This was because of the huge overhang of foreclosed properties coming on the market. Single family housing starts and new home sales both bottomed in 2011 - so this is just the seventh year of expansion - and I expect further increases in starts and sales over the next couple of years.

Recently the story has changed, but I still think the current expansion will end up being the longest in U.S. history.

Q2 GDP Forecasts

by Bill McBride on 6/22/2018 11:19:00 AM

From Merrill Lynch:

We continue to track 3.7% for 2Q GDP growth [June 22 estimate].
emphasis added
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 4.7 percent on June 19, down from 4.8 percent on June 14. [June 19 estimate]
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 2.9% for 2018:Q2 and 2.6% for 2018:Q3. [June 22 estimate]
CR Note: This is still quite a range.   These estimates suggest real annualized GDP in the 2.9% to 4.7% range in Q2.

Merrill: "The cost of a trade war"

by Bill McBride on 6/22/2018 08:53:00 AM

A few excerpts from a research note by Merrill Lynch economists: The cost of a trade war

Early this week, trade tensions ratcheted up another notch. President Trump announced that he has directed the US Trade Representative to prepare another round of tariffs on $200bn in Chinese imports at a tax rate of 10%. This comes after China announced that it would retaliate dollar for dollar against the initial round of tariffs that are set to go into effect on July 6. While the actual amount of tariffs that have been imposed by the US to date remain modest at just over $100bn worth of goods imports (only 4.2% of total goods imports), the latest announcement shows that trade tensions are likely to get worse before it gets better. Although we remain of the view that the likelihood of a full blown global trade war remains low, below we try to put some numbers on how a major trade confrontation could potentially impact the US economy.

The good news is that we are still many steps away from a full blown global trade war. The bad news is that the tail risks are rising and our work and the literature suggest a major global trade confrontation would likely push the US and the rest of the world to the brink of a recession. So far, the trade actions taken by the Trump White House and trading partners have been relatively modest and in turn have had a limited impact on the economy and financial markets. The next round of $100-$200bn of tariff between US and China may prove more substantial. Further escalation like auto tariffs would lead us to reassess the US economic outlook.

Thursday, June 21, 2018

Housing Inventory Tracking

by Bill McBride on 6/21/2018 03:06:00 PM

It appears existing home inventory has bottomed in some areas, and might be close to bottoming nationally. For example, in May, inventory was up 8.3% year-over-year (YoY) in California.   However inventory nationally was still down 6.1% YoY in May.

But this isn't like in late 2005, when inventory started increasing sharply indicating the end of the housing bubble. Currently lending standards have been reasonably solid (some loosening with FHA standards), and in some areas inventory is increasing - but from a very low level. As example, inventory was up almost 30% YoY in Sacramento in May, but the months-of-supply was just 1.5 months. Inventory in Sacramento could double or even triple, and house prices wouldn't decline (months-of-supply in the 5 to 6 month range is somewhat normal).

If inventory starts to increase, then house price growth will probably slow.   But it would take a significant increase in inventory to see price declines.

The graph below shows the year-over-year (YoY) change for non-contingent inventory in Houston, Las Vegas, Phoenix and Sacramento (through May 2018), and total existing home inventory as reported by the NAR (also through May 2018).

Click on graph for larger image.

This shows the YoY change in inventory for Houston, Las Vegas, Phoenix, and Sacramento.  The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory in Sacramento was up 30% year-over-year in May (inventory was still very low), and has increased YoY for eight consecutive months. 

Also note that inventory is still down 12% YoY in Las Vegas (red), but the YoY decline has been getting smaller - and inventory in Vegas will probably be up YoY very soon.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.   Currently I expect national inventory to be up YoY by the end of 2018 (but still be low).

This is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble, but it does appear that inventory is bottoming nationally (and has already bottomed in some areas like California).

Hotels: Occupancy Rate decreased Year-over-Year

by Bill McBride on 6/21/2018 01:41:00 PM

From STR: US hotel results for week ending 16 June

The U.S. hotel industry reported mixed year-over-year results in the three key performance metrics during the week of 10-16 June 2018, according to data from STR.

In comparison with the week of 11-17 June 2017, the industry recorded the following:

Occupancy: -0.3% to 74.2%
• Average daily rate (ADR): +2.0% to US$131.72
• Revenue per available room (RevPAR): +1.8% to US$97.70
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateClick on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

The occupancy rate, to date, is slightly ahead of the record year in 2017.  Note: 2017 finished strong due to the impact of the hurricanes.

On a seasonal basis, the occupancy rate will be solid for the next couple of months during the summer travel season.

Data Source: STR, Courtesy of

Earlier: Philly Fed Manufacturing Survey "Suggest Continuing Growth" in June

by Bill McBride on 6/21/2018 10:21:00 AM

From the Philly Fed: June 2018 Manufacturing Business Outlook Survey

Results from the June Manufacturing Business Outlook Survey suggest continued expansion of the region’s manufacturing sector. All the broad indicators remained positive, although the indicators for general activity and new orders fell notably. The firms continued to report higher prices for purchased inputs and their own manufactured goods. Expectations for the next six months continued to moderate but remain positive overall.

The diffusion index for current general activity remained positive but decreased 15 points this month. Almost 37 percent of the manufacturers reported increases in overall activity this month, while 17 percent reported decreases. ... The firms continued to report overall increases in employment. Nearly 34 percent of the responding firms reported increases in employment this month, while 3 percent reported decreases. The current employment index, at 30.4, was virtually unchanged from May. The current average workweek index, however, decreased 10 points.
emphasis added
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Fed Manufacturing Surveys and ISM PMI Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through June), and five Fed surveys are averaged (blue, through May) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through May (right axis).

This suggests the ISM manufacturing index will show solid expansion again in June, but probably weaker than in May.

Weekly Initial Unemployment Claims at 218,000

by Bill McBride on 6/21/2018 08:33:00 AM

The DOL reported:

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 218,000, a decrease of 3,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 218,000 to 221,000. The 4-week moving average was 221,000, a decrease of 4,000 from the previous week's revised average. The previous week's average was revised up by 750 from 224,250 to 225,000.
emphasis added
The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 221,000.

This was lower than the consensus forecast. The low level of claims suggest few layoffs.