Saturday, January 21, 2017

Schedule for Week of Jan 22nd

by Bill McBride on 1/21/2017 08:04:00 AM

The key economic report this week is the advance report of Q4 GDP on Friday.

Other key reports are December New and Existing Home sales.

----- Monday, Jan 23rd -----

No economic releases scheduled.

----- Tuesday, Jan 24th-----

Existing Home Sales10:00 AM: Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.54 million SAAR, down from 5.61 million in November.

Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR in December.

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

10:00 AM: Regional and State Employment and Unemployment (Monthly) for December 2016

----- Wednesday, Jan 25th -----

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

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

----- Thursday, Jan 26th -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 247 thousand initial claims, up from 234 thousand the previous week.

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

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

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

The consensus is for a decrease in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in December from 592 thousand in November.

11:00 AM: the Kansas City Fed manufacturing survey for January.
----- Friday, Jan 27th -----

8:30 AM: Gross Domestic Product, 4th quarter 2016 (advance estimate). The consensus is that real GDP increased 2.2% annualized in Q4, down from 3.5% in Q3.

8:30 AM: Durable Goods Orders for December from the Census Bureau. The consensus is for a 3.0% increase in durable goods orders.

10:00 AM: University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 98.2, up from the preliminary reading 98.1.

Friday, January 20, 2017

Lawler: The Household Conundrum, Part I Continued: The CPS/ASEC Data for 18-29 Year Olds

by Bill McBride on 1/20/2017 05:25:00 PM

Earlier: Lawler: The Household Conundrum, Part I: The CPS/ASEC Data

From housing economist Tom Lawler: The Household Conundrum, Part I Continued: The CPS/ASEC Data for 18-29 Year Olds

Many analysts have noted that estimates for the number of households from the CPS/ASEC appear to have overstated the “actual” number of households, with most of the overstatement being estimates of the number of “young adult” householders. If that were the case, then obviously the CPS/ASEC also understates the “other” living arrangements of young adults (e.g., young adults living with parents, other relatives, or non-relatives. Below is a table comparing the shares of 18-29 year olds by household relationship as estimated by the CPS/ASEC to those from Decennial Census 2010.

Note that the CPS/ASEC is a “household” survey, and not a survey of the entire population. Note also that the CPS/ASEC counts students living in college housing as living at home, while the Decennial Census counts students living in college housing as living in “group quarters” (and as such are not counted in the “household” population. On April 1, 2010 Decennial Census estimates show about 2.5 million people living in college housing, with the vast majority (though not quite all) of those people being between 18 and 29 years old. As such, I have added the number of 18-29 year olds living in college housing to the Decennial Census estimates of the “household” population in order to make Census data comparable in definition to the CPS/ASEC data.

Share of 18-29 Year Olds in the "Household" Population (CPS definition) by Relationship to Householder, 2010
  CPS/ASECCensusDifference
Householder30.5%27.6%2.9%
Spouse10.0%9.7%0.3%
Child38.4%39.7%-1.4%
Other Relative7.9%8.2%-0.2%
Non-Relative13.2%14.8%-1.6%

As the table indicates, CPS/ASEC estimates of the share of 18-29 year olds that were householders in 2010 is almost 3 percentage points higher than estimates from the Decennial Census. CPS/ASEC estimates of the share of 18-29 year olds living with parents, in contrast, are 1.4 percentage points below Census estimates, and the share of 18-29 year olds living with “non-relative” (roomer or boarder, housemate or roommate, unmarried partner, or “other”) is 1.6 percentage points below Census estimates.

While these differences may not seem that large, they (1) are statistically significant; and (2) imply that the CPS/ASC estimate for the number of 18-19 year old householders is about 1.6 million “too high.”

Even more startling, though not as important, are the CPS/ASEC estimates for the number of householders 15-17 years old – about 210,000 – compared to Decennial Census estimates of 28,297.

On the next table is a comparison of the number of households by age group from Census 2010 (“official” numbers) compared to those of the CPS/ASEC (adjusted to reflect Census 2010 population count “controls).

Household Estimates by Age Group, 2010 (000's)
  Decennial Census CPS/ASEC (Adjusted)% Difference
15-1728209638.5%
18-245,3736,11613.8%
25-298,4909,39710.7%
30-349,4689,7763.3%
35-4421,29121,7292.1%
45-5424,90725,1130.8%
55-6421,34020,777-2.6%
65-7413,50513,400-0.8%
75+12,31512,243-0.6%
Total116,716118,7601.8%

It is not readily apparent either (1) why the CPS/ASEC estimates for the number of “young” adult households are overstated by as much as they are (or why the overstatement is a function of age); or (2) why this overstatement showed up for the first time (albeit by not nearly as much) in 2000.

Some believe related to the significant increase in the non-response rate in the CPS that began around the same time (1994) that the CPS shifted computer-assisted interview data collection system (CATI), combined with higher non-response rates for younger adults relative to older adults. Others wonder whether the differences are somehow related to the “imperfect” sampling frame of the CPS/ASEC. Personally, I don’t know the answer.

If, in fact, the CPS is not getting the “living arrangements” of young adults “right” – overstating both the share of young adults that are householders and the share of young adults that are homeowners (see LEHC, 1/18/2016), then it would not be surprising that other statistics about young adults from the CPS (employment, income, etc.) may also be “off.”

Then and Now

by Bill McBride on 1/20/2017 01:42:00 PM

A few indicators comparing eight years ago and today ...

  Jan-09Dec-16
Vehicle Sales19.618.3
Monthly Employment change2 -791156
Unemployment Rate37.8%4.7%
Housing Starts44901,126
New Home Sales5336592
Mortgage Delinquency Rate613.0%6.1%
Budget Deficit79.8%2.8%
S&P 50088052,269
1millions, SAAR
2Thousands
3Peaked at 10% in 2009
4Thousands, SAAR
5Thousands, SAAR
6Source: MBA, Quarterly including in-foreclosure
7Annual, fiscal 2008 vs. 2016
8Jan 20, 2009 vs Jan 20, 2017

Lawler: The Household Conundrum, Part I: The CPS/ASEC Data

by Bill McBride on 1/20/2017 10:23:00 AM

From housing economist Tom Lawler: The Household Conundrum, Part I: The CPS/ASEC Data

A major challenge facing housing analysts is the lack of any timely and accurate time series of the characteristics of the housing market, including both the number of and the characteristics of occupied or vacant housing units. Instead, analysts are faced with numerous and often conflicting household and/or housing stock estimates based on different surveys conducted by different areas of the Census Bureau.

For analysts trying to assess which, if any, of the various surveys (which are based on samples) provides the “best” estimates of the number of and the characteristics of US households, one approach is to compare the survey estimates to counts from the decennial Census, which attempts to provide complete coverage of the population, households, and the housing stock, as well as all of their characteristics.

While some might think that such a comparison is straightforward, in fact it can be a little tricky. First, household estimates (totals and/or characteristics) are based on either population estimates or housing stock estimates available at the time the survey results are published. While initial population and housing stock estimates for any given year are almost always revised – sometimes by a sizable amount subsequent to the compilation of decennial Census counts – household estimates for those years are typically not revised. As such, the historical time series on households from most surveys are not consistent with current population/housing stock estimates.

For example, for the Current Population Survey Annual Social and Economic Supplement (CPS/ASEC), the household estimates for 1990, 2000, and 2010 (coinciding with decennial Census years) are not based on population counts from the decennial Census in those years, but instead are based on pre-Decennial Census estimates. And, in each year’s case, the population estimates used in the CPS/ASEC were significantly different from decennial Census counts. As such, CPS/ASEC household estimates for those years need to be adjusted to reflect what they would have been if updated population estimates had been available.

Further complicating these comparisons is the fact the Decennial Census counts themselves are not perfect. In fact, subsequent to each Decennial Census the Census Bureau conducts two separate studies to assess the coverage and accuracy of the Census counts: one designed to assess the coverage and accuracy of the population count, and the other to assess the coverage and accuracy of the housing stock count. As such, one should probably adjust the “official” Decennial Census household counts when comparing them to the “adjusted” CPS/ASEC estimates.

I have attempted to make all of the adjustments to the best of my ability, and the adjusted results are shown in the following table.

Total Households by Age Group, Adjusted CPS/ASEC (000's)
  1990200020102000-19902010-20002010-1990
Total93,424106,434118,76013,01012,32625,336
15-245,3615,8446,325483481964
25-3420,81118,98719,173-1,824186-1,638
35-4420,69124,02521,7293,334-2,2961,038
45-5414,37121,21225,1136,8413,90110,742
55-6412,24313,88820,7771,6456,8898,534
65-7411,56811,64113,400731,7591,832
75+8,37910,83712,2432,4581,4063,864
Total Households by Age Group, Adjusted Decennial Census (000's)
  1990200020102000-19902010-20002010-1990
Total92,434105,809116,75213,37510,94324,318
15-245,2835,5515,403268-148120
25-3420,40718,35517,963-2,052-392-2,444
35-4420,51524,04321,2983,528-2,745783
45-5414,39221,35924,9156,9673,55610,523
55-6412,25314,29121,3472,0387,0569,094
65-7411,25011,54413,5092941,9652,259
75+8,33410,66612,3192,3321,6533,985
Homeowners by Age Group, Adjusted CPS/ASEC (000's)
  1990200020102000-19902010-20002010-1990
Total59,62371,62079,68411,9978,06420,061
15-248201,2321,446412214626
25-349,2238,7728,633-451-139-590
35-4413,75416,20014,2322,446-1,968478
45-5410,92916,25218,4555,3232,2037,526
55-649,84711,13916,3261,2925,1876,479
65-749,1019,59310,9844921,3911,883
75+5,9498,4329,6082,4831,1763,659
Homeowners by Age Group, Adjusted Decennial Census (000's)
  1990200020102000-19902010-20002010-1990
Total59,24669,92776,14010,6816,21316,894
15-2490599287287-120-33
25-349,2818,3507,562-931-788-1,719
35-4413,62515,89213,2832,267-2,609-342
45-5410,87415,98217,8405,1081,8586,966
55-649,79211,38516,5361,5935,1516,744
65-748,8899,36910,8564801,4871,967
75+5,8817,9589,1912,0771,2333,310

There are a few things worth noting. For 1990 the adjusted CPS/ASEC household and homeowner counts are not too far off from the adjusted Decennial Census Counts either in total or by age. By 2000, however, the CPS/ASEC homeowner counts were significantly higher than the Decennial Census Counts, and that gap widened sharply in 2010. That “gap” was especially striking for estimates of young adult homeowners, where CPS/ASEC estimates massively exceeded decennial Census estimates. CPS/ASEC estimates of total household growth from 2000 to 2010 also were significantly higher than growth shown in the Decennial Census, with most of the difference coming in growth estimates for younger adults. The rather sizable disparities between CPS/ASEC estimates of younger adult households (and even more so for homeowners) and Decennial Census estimates for 2010 is rather disturbing, and suggests that the CPS/ASEC may not provide a particular good measure of the living arrangements of “young” adults.

This comparison also suggests that housing economists looking either to analyze past household/homeowner trends by age, or to project future household growth and homeowner growth by age, should probably not use the CPS/ACS estimates to produce such analysis or forecasts. In addition, people looking for household projections should be extremely leery of projections based on CPS/ASEC data (the recently released from the Joint Center for Housing Studies comes to mind).

Thursday, January 19, 2017

Yellen: The Economic Outlook and the Conduct of Monetary Policy

by Bill McBride on 1/19/2017 08:07:00 PM

From Fed Chair Janet Yellen: The Economic Outlook and the Conduct of Monetary Policy

In my remarks today, I will review the considerable progress the economy has made toward the attainment of the two objectives that the Congress has assigned to the Federal Reserve--maximum employment and price stability. The upshot is that labor utilization is close to its estimated longer-run normal level, and we are closing in on our 2 percent inflation objective. I will then discuss the prospects for adjusting monetary policy in the manner needed to sustain a strong job market while maintaining low and stable inflation. Determining how best to adjust the federal funds rate over time to achieve these objectives will not be easy. For that reason, in the balance of my remarks, I will discuss some considerations that will help inform our decisions, including the guidance provided by simple policy rules. I will conclude by touching on some key uncertainties affecting the outlook.
...
I think that allowing the economy to run markedly and persistently "hot" would be risky and unwise. Waiting too long to remove accommodation could cause inflation expectations to begin ratcheting up, driving actual inflation higher and making it harder to control. The combination of persistently low interest rates and strong labor market conditions could lead to undesirable increases in leverage and other financial imbalances, although such risks would likely take time to emerge. Finally, waiting too long to tighten policy could require the FOMC to eventually raise interest rates rapidly, which could risk disrupting financial markets and pushing the economy into recession. For these reasons, I consider it prudent to adjust the stance of monetary policy gradually over time--a strategy that should improve the prospects that the economy will achieve sustainable growth with the labor market operating at full employment and inflation running at about 2 percent.
...
To sum up, simple policy rules can serve as useful benchmarks to help assess how monetary policy should be adjusted over time. However, their prescriptions must be interpreted carefully, both because estimates of some of their key inputs can vary significantly and because the rules often do not take into account important considerations and information pertaining to the outlook. For these reasons, the rules should not be followed mechanically, since doing so could have adverse consequences for the economy.
...
Conclusion
My remarks have focused on the policy trajectory that the Committee now considers likely to be appropriate to sustain the economic expansion while keeping inflation close to our 2 percent goal. In concluding, it is important to emphasize the considerable uncertainty that attaches to such assessments and the need to constantly update them.

In particular, the path of the neutral federal funds rate, which plays an important role in determining the appropriate policy path, is highly uncertain. For example, productivity growth is a key determinant of the neutral rate, and while most forecasters expect productivity growth to pick up from its recent unusually slow pace, the timing of such a pickup is highly uncertain. Indeed, there is little consensus among researchers about the causes of the recent slowdown in productivity growth that has occurred both at home and abroad. The strength of global growth will also have an important bearing on the neutral rate through both trade and financial channels, and here, too, the scope for surprises is considerable. Finally, I would mention the potential for changes in fiscal policy to affect the economic outlook and the appropriate policy path. At this point, however, the size, timing, and composition of such changes remain uncertain. However, as this discussion highlights, the course of monetary policy over the next few years will depend on many different factors, of which fiscal policy is just one.

Comments on December Housing Starts

by Bill McBride on 1/19/2017 01:25:00 PM

Earlier: Housing Starts increased to 1.226 Million Annual Rate in December

The housing starts report this morning was above consensus because of the sharp increase in multi-family starts. Multi-family is frequently volatile month-to-month, and has seen especially wild swings over the last four months.

Meanwhile single family starts were decent.   Just remember that multi-family can be very volatile ...

This first graph shows the month to month comparison between 2015 (blue) and 2016 (red).

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

Starts were up 4.9% in 2016 compared to 2015.  My guess was starts would increase 4% to 8% in 2016.

Multi-family starts are down 3.1% in 2016, and single-family starts are up 9.3% year-over-year.

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 several years of increasing single family starts and completions.

Philly Fed: Manufacturing Activity Continued to Improve in January

by Bill McBride on 1/19/2017 10:43:00 AM

Earlier from the Philly Fed: Manufacturing Activity Continued to Improve in January

Economic conditions continued to improve in January, according to the firms responding to this month’s Manufacturing Business Outlook Survey. The indexes for general activity, new orders, and employment were all positive this month and increased from their readings last month. Manufacturers have generally grown more optimistic in their forecasts over the past two months. The future indexes for growth over the next six months, including employment, continued to improve this month.
...
The index for current manufacturing activity in the region increased from a revised reading of 19.7 in December to 23.6 this month. ... The general activity index has remained positive for six consecutive months, and the activity index reading was the highest since November 2014.
...
Firms reported an increase in manufacturing employment this month. ... The current employment index improved 9 points, registering its second consecutive positive reading.
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 January), and five Fed surveys are averaged (blue, through December) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through December (right axis).

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

Weekly Initial Unemployment Claims decrease to 234,000

by Bill McBride on 1/19/2017 08:42:00 AM

The DOL reported:

In the week ending January 14, the advance figure for seasonally adjusted initial claims was 234,000, a decrease of 15,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 247,000 to 249,000. The 4-week moving average was 246,750, a decrease of 10,250 from the previous week's revised average. This is the lowest level for this average since November 3, 1973 when it was 244,000. The previous week's average was revised up by 500 from 256,500 to 257,000.

There were no special factors impacting this week's initial claims.
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 246,750.

This was below the consensus forecast.  This is the lowest level for the four week average since 1973 (with a much larger population).

The low level of claims suggests relatively few layoffs.

Housing Starts increased to 1.226 Million Annual Rate in December

by Bill McBride on 1/19/2017 08:37:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,226,000. This is 11.3 percent above the revised November rate of 1,102,000 and is 5.7 percent above the December 2015 rate of 1,160,000.

Single-family housing starts in December were at a rate of 795,000; this is 4.0 percent below the revised November figure of 828,000. The December rate for units in buildings with five units or more was 417,000.

An estimated 1,166,400 housing units were started in 2016. This is 4.9 percent above the 2015 figure of 1,111,800.

Building Permits:
Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,210,000. This is 0.2 percent below the revised November rate of 1,212,000, but is 0.7 percent above the December 2015 estimate of 1,201,000.

Single-family authorizations in December were at a rate of 817,000; this is 4.7 percent above the revised November figure of 780,000. Authorizations of units in buildings with five units or more were at a rate of 355,000 in December.

An estimated 1,186,900 housing units were authorized by building permits in 2016. This is 0.4 percent above the 2015 figure of 1,182,600.
emphasis added
Total Housing Starts and Single Family Housing Starts Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased in December compared to November.  Multi-family starts are up 9% year-over-year.

Multi-family is volatile, and the swings have been huge over the last four months.

Single-family starts (blue) decreased in December, and are up 4% year-over-year.

Total Housing Starts and Single Family Housing Starts The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

Total housing starts in December were above expectations due to the sharp increase in multi-family starts.  However October and November were revised down slightly, combined.  Another solid report.  I'll have more later ...

Wednesday, January 18, 2017

Thursday: Housing Starts, Unemployment Claims, Philly Fed Mfg Survey, Dr. Yellen

by Bill McBride on 1/18/2017 08:28:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, up from 247 thousand the previous week.

• Also at 8:30 AM, Housing Starts for December. The consensus is for 1.200 million, up from the November rate.

• Also at 8:30 AM: the Philly Fed manufacturing survey for January. The consensus is for a reading of 16.0, down from 19.7.

• At 8:00 PM, Speech, Fed Chair Janet Yellen, The Economic Outlook and the Conduct of Monetary Policy, At the Stanford Institute for Economic Policy Research, San Francisco, California