Sunday, February 19, 2017

Don't like the data? Change it!

by Bill McBride on 2/19/2017 08:47:00 PM

From the WSJ: Trump Administration Considers Change in Calculating U.S. Trade Deficit

The Trump administration is considering changing the way it calculates U.S. trade deficits, a shift that would make the country’s trade gap appear larger than it had in past years ...

The leading idea under consideration would exclude from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged, these people told The Wall Street Journal.

Economists say that approach would inflate trade deficit numbers because it would typically count goods as imports when they come into the country but not count the same goods when they go back out, known as re-exports.
I'm all for constantly evaluating methods, and improving data collection and reporting, but this - as reported - doesn't seem to make sense.

If a car is imported to the U.S., and then is unchanged and exported to a third country, it seems there would be two choices: 1) Count it is an import AND an export, or 2) don't count it as either an import or export (it is just passing through).    But counting the import and not the export makes as much sense as counting the export, but not the import.  Crazy.

Demographics and GDP

by Bill McBride on 2/19/2017 10:25:00 AM

Two years ago I wrote: Demographics and GDP: 2% is the new 4%. As I noted, "One simple way to look at the change in GDP is as the change in the labor force, times the change in productivity. If the labor force is growing quickly, GDP will be higher with the same gains in productivity. And the opposite is true."

Obviously demographics are important for GDP.

Last week, Goldman Sachs economist Daan Struyven wrote: Immigration Restrictions: A Downside Risk to the Economy's Speed Limit. Here are few excerpts from his note:

The contribution from net immigration to total population growth has risen from 30% in the 1990s to 40-50% recently as the natural increase in population has slowed. The effect of immigration on growth of the labor force is even more pronounced as immigrants tend to be younger and therefore more likely to participate in the labor force than the native-born population. As a result, net immigration currently accounts for virtually all of the 0.5% trend increase in the labor force.

Reduced immigration would result in slower labor force growth and therefore slower growth in potential GDP—the economy’s “speed limit”. In addition, academic studies suggest there could be negative knock-on effects on productivity growth. As a result, we see immigration restrictions as an important source of downside risk to our 1.75% estimate of potential growth.
As Struyven notes, immigrations restrictions will lower potenetial GDP.

And yesterday, Professor Krugman wrote: Trump’s Rosy Scenario
The claimed returns to Trumpnomics are close to the highest growth rates we’ve seen under any modern administration. Real GDP grew 3.4 percent annually under Reagan; it grew 3.7 percent annually under Clinton ... But there are fundamental reasons to believe that such growth is unlikely to happen now.

First, demography: Reagan took office with baby boomers — and women — still entering the work force; these days baby boomers are leaving. ... Just on demography alone, then, you’d expect growth to be around a percentage point lower than it was under Reagan.
CR Note: It seems very unlikely that growth will pick up sharply, especially if there are severe immigration restrictions.

Saturday, February 18, 2017

Schedule for Week of Feb 19, 2017

by Bill McBride on 2/18/2017 08:11:00 AM

The key economic report this week are January New and Existing Home sales.

----- Monday, Feb 20th -----

All US markets are closed in observance of the Presidents' Day holiday.

----- Tuesday, Feb 21st-----

No major economic releases scheduled.

----- Wednesday, Feb 22nd -----

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

Existing Home Sales10:00 AM: Existing Home Sales for January from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, up from 5.49 million in December.

Housing economist Tom Lawler expects the NAR to report sales of 5.60 million SAAR in January.

During the day: The AIA's Architecture Billings Index for January (a leading indicator for commercial real estate).

2:00 PM: FOMC Minutes for the Meeting of January 31-February 1, 2017

----- Thursday, Feb 23rd -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 240 thousand initial claims, up from 239 thousand the previous week.

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

9:00 AM: FHFA House Price Index for December 2016. This was originally a GSE only repeat sales, however there is also an expanded index.

11:00 AM: the Kansas City Fed manufacturing survey for February.

----- Friday, Feb 24th -----

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

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

The consensus is for a increase in sales to 573 thousand Seasonally Adjusted Annual Rate (SAAR) in January from 536 thousand in December.

10:00 AM: University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 96.0, up from the preliminary reading 95.7.

Friday, February 17, 2017

Lawler: Early Read on Existing Home Sales in January

by Bill McBride on 2/17/2017 04:12:00 PM

From housing economist Tom Lawler: Early Read on Existing Home Sales in January

Based on publicly-available state and/or local realtor/MLS reports released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.60 million, up 2.0% from December’s preliminary pace and up 2.4% from last January’s seasonally-adjusted pace. Unadjusted sales should show a larger YOY gain, reflecting the higher business day count this January compared to last January. Remember that in the January report the NAR will update its seasonal factors (and as a result its seasonally adjusted sales figures) both for last year and for the previous several years.

Realtor data suggest that the YOY decline in existing homes for sale was larger in January than in December, and I project that the NAR’s inventory estimate will be 1,650, unchanged from the preliminary December estimate and down 9.3% from last January. Finally, realtor data suggest that the median existing SF home sales price in January was up about 6.1% from last January.

CR Note: The NAR is scheduled to release January existing home sales on Wednesday, February 22nd. The consensus is the NAR will report sales of 5.55 million SAAR.

AAR: Rail Traffic increased in January

by Bill McBride on 2/17/2017 01:40:00 PM

From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.

January 2017 wasn’t a great start of the year for U.S. rail traffic, but it wasn’t terrible either. Total carloads were up 2.9% (28,341) over last January, thanks mainly to a 35,798 (11.9%) increase in carloads of coal. ... Intermodal was down 1.8% on U.S. railroads in January 2017, but it was still the second-best January for intermodal on record.
Rail Traffic Click on graph for larger image.

This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Dark blue is 2017.

Rail carloads have been weak over the last decade due to the decline in coal shipments.
U.S. railroads originated 996,573 total carloads in the four weeks of January 2017, up 2.9% (28,341 carloads) over January 2016. ...

Coal carloads were up 11.9% (35,798 carloads) in January 2017. Coal carloads had fallen so low last year there didn’t seem to be anywhere to go but up.
Rail TrafficThe second graph is for intermodal traffic (using intermodal or shipping containers):
U.S. intermodal volume in January 2017 was down 1.8% from January 2016, as a 1.7% decline in containers joined a 3.0% decline in trailers. Still, weekly average volume of 255,267 containers and trailers in January 2017 was the second highest (behind last year) for January in history.

Quarterly Housing Starts by Intent

by Bill McBride on 2/17/2017 11:06:00 AM

In addition to housing starts for January, the Census Bureau also released the Q4 "Started and Completed by Purpose of Construction" report last week.

It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series.
However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis.

The quarterly report released last week showed there were 138,000 single family starts, built for sale, in Q4 2016, and that was above the 126,000 new homes sold for the same quarter, so inventory increased in Q4 (Using Not Seasonally Adjusted data for both starts and sales).

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

New Home Sales and Housing Starts by IntentClick on graph for larger image.

Single family starts built for sale were up about 17% compared to Q4 2015.

Owner built starts were unchanged year-over-year. And condos built for sale not far above the record low.

The 'units built for rent' (blue) has increased significantly in recent years, but is now moving more sideways.

Phoenix Real Estate in January: Sales up 16%, Inventory down 8%

by Bill McBride on 2/17/2017 08:47:00 AM

This is a key housing market to follow since Phoenix saw a large bubble and bust, followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in January were up 15.9% year-over-year.

2) Cash Sales (frequently investors) were down to 27.1% of total sales.

3) Active inventory is now down 7.7% year-over-year.  

More inventory (a theme in most of 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster.  Prices were up 6.3% in 2015 according to Case-Shiller.

This is the third consecutive month with a YoY decrease in inventory following eight months with YoY increases.  This might be a change in trend - something to watch.

January Residential Sales and Inventory, Greater Phoenix Area, ARMLS
1 January 2008 probably included pending listings

Thursday, February 16, 2017

Comments on January Housing Starts

by Bill McBride on 2/16/2017 03:11:00 PM

Earlier: Housing Starts at 1.246 Million Annual Rate in January

The housing starts report released this morning showed starts were down in January compared to December 2016, however starts in December (and November) were revised up sharply.  Starts in January were actually somewhat above consensus - and above the preliminary release for December.

Note that multi-family is frequently volatile month-to-month, and has seen especially wild swings over the last five months.  Single family starts were solid in January.

This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).

Starts Housing 2015 and 2016Click on graph for larger image.

Starts were up 10.5% in January 2017 compared to January 2016.

My guess is starts will increase around 3% to 7% in 2017.

This is a solid start to 2017.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Multifamily Starts and completionsThe blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years - but has started to decline.  Completions (red line) have lagged behind - but completions have been generally catching up (more deliveries, although this has dipped lately).  Completions lag starts by about 12 months.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).

Single family Starts and completionsThe second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect a few years of increasing single family starts and completions.

NY Fed: Household Debt Increases Substantially, Approaching Previous Peak

by Bill McBride on 2/16/2017 11:22:00 AM

The Q4 report was released today: Household Debt and Credit Report.

From the NY Fed: Household Debt Increases Substantially, Approaching Previous Peak

he Federal Reserve Bank of New York today issued its Quarterly Report on Household Debt and Credit, which reported that total household debt increased substantially by $226 billion (a 1.8% increase) to $12.58 trillion during the fourth quarter of 2016. This marked the largest quarterly increase in total household debt since the fourth quarter of 2013, and debt today is now just 0.8% below its peak of $12.68 trillion reached in the third quarter of 2008. Every type of debt increased since the previous quarter, with a 1.6% increase in mortgage debt, 1.9% increase in auto loan balances, a 4.3% increase in credit card balances, and a 2.4% percent increase in student loan balances. This boost in balances was in part driven by new extensions of credit, with a large increase in the volume of mortgage originations and a continuation in the strong recent trend in auto loan originations. This report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.
Mortgage balances increased and mortgage originations reached the highest level seen since the beginning of the Great Recession.

Mortgage delinquencies remained mostly unchanged and the delinquency transition rates for current mortgage accounts improved slightly.

New foreclosure notations reached another new low for the 18-year history of this series.
Overall delinquency rates were roughly stable this quarter.

This quarter saw the lowest number of bankruptcy notations in the 18-year history of this series, continuing an overall downward trend since the financial crisis.
emphasis added
Total Household Debt Click on graph for larger image.

Here are two graphs from the report:

The first graph shows aggregate consumer debt increased in Q4.  Household debt peaked in 2008, and bottomed in Q2 2013.

Mortgage debt increased in Q4, from the NY Fed:
Mortgage balances, the largest component of household debt, increased during the fourth quarter. Mortgage balances shown on consumer credit reports on December 31 stood at $8.48 trillion, an increase of $130 billion from the third quarter of 2016.
Delinquency Status The second graph shows the percent of debt in delinquency. There is still a larger than normal percent of debt 90+ days delinquent (Yellow, orange and red).

The overall delinquency rate was mostly unchanged in Q4.  From the NY Fed:
Delinquency rates were roughly stable in the last quarter of 2016, with a small uptick in severely derogatory balances offset by a modest improvement in 30 days delinquent balances. As of December 31st, 4.8% of outstanding debt was in some stage of delinquency. Of the $607 billion of debt that is delinquent, $412 billion is seriously delinquent (at least 90 days late or “severely derogatory”).

Philly Fed: Manufacturing Conditions Continued to Improve in February

by Bill McBride on 2/16/2017 10:15:00 AM

Earlier from the Philly Fed: Manufacturing Conditions Continued to Improve in February

Results from the February Manufacturing Business Outlook Survey suggest that growth in regional manufacturing is broadening. The diffusion indexes for general activity, new orders, and shipments were all positive this month and increased notably from their readings last month. The surveyed firms continued to report growth in employment and work hours. Although they moderated from last month, the future indexes for growth over the next six months continued to reflect a high degree of optimism.
The index for current manufacturing activity in the region increased from a reading of 23.6 in January to 43.3 this month and has remained positive for seven consecutive months. ...
Firms continued to report overall increases in manufacturing employment this month. ... The current employment index fell 2 points but has now registered its third consecutive positive reading. Firms reported an increase in work hours this month: The average workweek index increased 7 points and has now been positive for four consecutive months.
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 February), and five Fed surveys are averaged (blue, through January) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through January (right axis).

It seems likely the ISM manufacturing index will show faster expansion again in February.