Thursday, October 30, 2014

Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

by Bill McBride on 10/30/2014 06:52:00 PM

From Freddie Mac: Mortgage Rates Rebound, Remain Below Four Percent

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving higher across the board this week and rebounding from the lowest rates of the year.

30-year fixed-rate mortgage (FRM) averaged 3.98 percent with an average 0.5 point for the week ending October 30, 2014, up from last week when it averaged 3.92 percent. A year ago at this time, the 30-year FRM averaged 4.10 percent.
Mortgage News Daily shows rates today were at 4.01%.

• At 8:30 AM ET, Personal Income and Outlays for September. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 9:45 AM, the Chicago Purchasing Managers Index for October. The consensus is for a reading of 60.0, down from 60.5 in September.

• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (final for October). The consensus is for a reading of 86.4, unchanged from the preliminary reading of 86.4, and up from the September reading of 84.6.

Hotels: Occupancy up 5.4%, RevPAR up 10.8% Year-over-Year

by Bill McBride on 10/30/2014 02:54:00 PM

From STR: US results for week ending 25 October

The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 19-25 October 2014, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy rose 5.4 percent to 69.4 percent. Average daily rate increased 5.1 percent to finish the week at US$119.52. Revenue per available room for the week was up 10.8 percent to finish at US$82.89
emphasis added
Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Business travel has probably peaked for the Fall season, and now hotels are heading into the slow period.

Hotel Occupancy Rate Click on graph for larger image.

The red line is for 2014, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  Purple is for 2000.

The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is a little above the level for the same week in 2000 (the previous high). 

Right now it looks like 2014 will be the best year since 2000 for hotels.

And since it takes some time to plan and build hotels, I expect 2015 will be a record year for hotel occupancy.

Data Source: Smith Travel Research, Courtesy of

Lawler: MDC Results and Homebuilder Summary Table

by Bill McBride on 10/30/2014 11:36:00 AM

From housing economist Tom Lawler: M.D.C. Holdings: Net Orders Up, Orders per Community Down; Margins Fall on Higher Incentives

M.D.C. Holdings reported that net home orders in the quarter ended September 30, 2014 totaled 1,081, up 17.0% from the comparable quarter of 2013. Net orders per active community were down 2.3% from a year ago. Home deliveries totaled 1,093 last quarter, down 13.0% from the comparable quarter of 2013, at an average sales price of $370,600, up 7.4% from a year ago. The company’s order backlog at the end of September was 1,874, up 6.4% from last September, at an average order price of $422,700, up 10.0% from a year ago.

Here are some excerpts from the company’s press release.

‘Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "Against the backdrop of an uneven recovery for housing and overall economic conditions, we are pleased that we have consistently produced profitable results since the beginning of 2012. However, the volatility of the housing market recovery was evident in our third quarter results, as elevated land and construction costs, combined with our use of additional incentives to stimulate demand for new homes, have pressured our homebuilding gross margins."

‘Mr. Mizel continued, "While we believe that the housing recovery remains on solid footing, it is evident that certain obstacles, such as Qualified Mortgage Standards and reduced Federal Housing Authority loan limits, have taken their toll on housing demand, especially for the first time buyer segment. Additionally, on the production side of our business, we have seen a negative impact from tighter subcontractor availability and adverse weather conditions in certain markets, as well as an elongated mortgage approval process. We believe the impact of many of these factors will diminish over time, allowing us to return to more robust levels of demand as overall economic conditions continue to improve."’
M.D.C.’s results were below “consensus.”

Here are some summary results for large publicly-traded builders who have reported results for last quarter. For these six builders combined, net orders per active community last quarter were up 1.8% YOY. Excluding the impact of acquisitions of other builders, net orders last quarter were up about 8.3% YOY.

  Net OrdersSettlementsAverage Closing Price
Qtr. Ended:9/30/149/30/13% Chg9/30/149/30/13% Chg9/30/149/30/13% Chg
The Ryland

Weekly Initial Unemployment Claims increased to 287,000, 4-Week Average lowest since May 2000

by Bill McBride on 10/30/2014 10:30:00 AM

Earlier the DOL reported:

In the week ending October 25, the advance figure for seasonally adjusted initial claims was 287,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 283,000 to 284,000. The 4-week moving average was 281,000, a decrease of 250 from the previous week's revised average.

There were no special factors impacting this week's initial claims.
The previous week was revised up to 284,000.

The following graph shows the 4-week moving average of weekly claims since January 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 281,000.

This was close to the consensus forecast and suggests few layoffs.

BEA: Real GDP increased at 3.5% Annualized Rate in Q3

by Bill McBride on 10/30/2014 08:44:00 AM

From the BEA: Gross Domestic Product, Third Quarter 2014 (Advance Estimate)

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 3.5 percent in the third quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.6 percent.
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.
The advance Q3 GDP report, with 3.5% annualized growth, was above expectations of a 2.8% increase.

Personal consumption expenditures (PCE) increased at a 1.8% annualized rate - a slow pace.

The first graph shows the contribution to percent change in GDP for residential investment (RI) and state and local governments since 2005.

This shows the huge slump in RI during the housing bust (blue), followed by the unprecedented period of state and local austerity (red) not seen since the Depression.

State and Local Government Residential Investment GDPClick on graph for larger image.

State and local government spending was positive in Q3, and I expect state and local governments to continue to make a positive contribution to GDP in Q4 and in 2015.

RI (blue) added to GDP growth for a few years, before subtracting in Q4 2013 and Q1 2014.    RI bounced back in Q2 and Q3.

Residential InvestmentThe second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP has bottomed, but it still below the levels of previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

non-Residential InvestmentThe third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment is trending up as a percent of GDP..

I'll add details for investment in offices, malls and hotels next week.

Overall this was an OK report, however PCE was weak (I expect stronger PCE going forward).

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