Tuesday, April 30, 2013

Wednesday: FOMC Meeting, Auto Sales, ISM Mfg Index, Construction Spending, ADP Employment and more

by Bill McBride on 4/30/2013 07:05:00 PM

A couple of releases earlier today:

From the Chicago ISM: (Ouch!)

The Chicago Purchasing Managers reported April's Chicago Business Barometer fell 3.4 to 49.0, a 3-1/2 year low. Except for a minor gain in New Orders, all Business Activity measures weakened in April with five of seven now in contraction. BUSINESS ACTIVITY: SUPPLIER DELIVERIES, PRICES PAID, and PRODUCTION: all lowest since 2009; ORDER BACKLOGS: ten months of contraction in the past 12 months; EMPLOYMENT: third month over month decline.
And from the Conference Board: The Conference Board Consumer Confidence Index® Improves in April
The Conference Board Consumer Confidence Index®, which had declined in March, increased in April. The Index now stands at 68.1 (1985=100), up from 61.9 in March. The Present Situation Index increased to 60.4 from 59.2. The Expectations Index improved to 73.3 from 63.7 last month.
Wednesday economic releases:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, the ADP Employment Report for April will be released. This report is for private payrolls only (no government). The consensus is for 155,000 payroll jobs added in April.

• At 9:00 AM, the Markit US PMI Manufacturing Index for April. The consensus is for a decrease to 52.0 from 54.6 in March.

• At 10:00 AM, the ISM Manufacturing Index for April. The consensus is for a decrease to 51.0 from 51.3 in March. Based on the regional surveys, a reading below 50 is possible.

• Also at 10:00 AM, Construction Spending for March. The consensus is for a 0.6% increase in construction spending.

• At 2:00 PM, FOMC Meeting Announcement will be released. No change to interest rates or QE purchases is expected at this meeting.

• All day: Light vehicle sales for April. The consensus is for light vehicle sales to be at 15.3 million SAAR in March (Seasonally Adjusted Annual Rate) unchanged from 15.3 SAAR in March.

Restaurant Index increased in March

by Bill McBride on 4/30/2013 04:40:00 PM

From the National Restaurant Association: Positive same-store sales push RPI above 100 in March

Buoyed by positive sales results and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) rose above 100 in March. The RPI stood at 100.6 in March, up 0.7 percent from February’s level of 99.9. March represented the second time in the last three months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The Restaurant Performance Index gain was driven by stronger same-store sales results in March, with comparisons aided by the Easter holiday occurring during the month,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, restaurant operators are somewhat more confident in the economy and a majority plan to make a capital expenditure in the next six months.”
...
The Current Situation Index stood at 99.8 in March – up 1.5 percent from February’s level. After reporting a same-store sales decline for the first time in 21 months, restaurant operators bounced back in March with a modest net gain. ... While overall sales were positive in March, restaurant operators reported a net decline in customer traffic for the fourth consecutive month. Despite the mixed sales and traffic results, restaurant operators reported an increase in capital spending activity.
Restaurant Performance Index Click on graph for larger image.

The index increased to 100.6 in March, up from 99.9 in February. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.  More evidence of a currently sluggish recovery ...

Earlier on House Prices:
Case-Shiller: Comp 20 House Prices increased 9.3% year-over-year in February
Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000

HVS: Q1 2013 Homeownership and Vacancy Rates

by Bill McBride on 4/30/2013 01:49:00 PM

The Census Bureau released the Housing Vacancies and Homeownership report for Q1 2013 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply, or rely on the homeownership rate, except as a guide to the trend.

Homeownership Rate Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 65.0%, down from 65.4% in Q4.

I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range.

Homeowner Vacancy RateThe HVS homeowner vacancy rate was increased to 2.1% in Q1 from 1.9% in Q4. 

The homeowner vacancy rate has peaked and is now generally declining, although it isn't really clear what this means. Are these homes becoming rentals? Anyway - once again - this probably shows that the trend is down, but I wouldn't rely on the absolute numbers.

Rental Vacancy RateThe rental vacancy rate declined in Q4 to 8.6%, from 8.7% in Q4.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the overall trend in the rental vacancy rate - and Reis reported that the rental vacancy rate has fallen to the lowest level since 2001.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Unfortunately many analysts still use this survey to estimate the excess vacant supply. However this does suggest that the housing vacancy rates have declined sharply.

Earlier on House Prices:
Case-Shiller: Comp 20 House Prices increased 9.3% year-over-year in February
Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000

Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000

by Bill McBride on 4/30/2013 10:49:00 AM

Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.

As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation.  This is why economist also look at real house prices (inflation adjusted).

Nominal House Prices

Nominal House PricesThe first graph shows the quarterly Case-Shiller National Index SA (through Q4 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through February) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q2 2003 levels (and also back up to Q3 2010), and the Case-Shiller Composite 20 Index (SA) is back to November 2003 levels, and the CoreLogic index (NSA) is back to January 2004.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to October 1999 levels, the Composite 20 index is back to January 2001, and the CoreLogic index back to February 2001.

In real terms, most of the appreciation in the last decade is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q4 1999 levels, the Composite 20 index is back to January 2001 levels, and the CoreLogic index is back to February 2001.

In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

Nominal Prices: Cities relative to Jan 2000


Case-Shiller CitiesThe last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 29% above January 2000 (I'll look at this in real terms later). Some cities - like Denver - are close to the peak level. Other cities, like Atlanta and Detroit, are below the January 2000 level.

Case-Shiller: Comp 20 House Prices increased 9.3% year-over-year in February

by Bill McBride on 4/30/2013 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for February ("February" is a 3 month average of December, January and February).

This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: Home Prices Rise in February 2013 According to the S&P/Case-Shiller Home Price Indices

Data through February 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed average home prices increased 8.6% and 9.3% for the 10- and 20-City Composites in the 12 months ending in February 2013. The 10- and 20-City Composites rose 0.4% and 0.3% from January to February.

“Home prices continue to show solid increases across all 20 cities,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The 10- and 20-City Composites recorded their highest annual growth rates since May 2006; seasonally adjusted monthly data show all 20 cities saw higher prices for two months in a row – the last time that happened was in early 2005.

“Phoenix, San Francisco, Las Vegas and Atlanta were the four cities with the highest year-over-year price increases. Atlanta recovered from a wave of foreclosures in 2012 while the other three were among the hardest hit in the housing collapse. At the other end of the rankings, three older cities – New York, Boston and Chicago – saw the smallest year-over-year price improvements.
Case-Shiller House Prices Indices Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 28.4% from the peak, and up 1.2% in February (SA). The Composite 10 is up 8.6% from the post bubble low set in Feb 2012 (SA).

The Composite 20 index is off 27.5% from the peak, and up 1.2% (SA) in February. The Composite 20 is up 9.4% from the post-bubble low set in Jan 2012 (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 8.6% compared to February 2012.

The Composite 20 SA is up 9.3% compared to February 2012. This was the ninth consecutive month with a year-over-year gain and this was the largest year-over-year gain for the Composite 20 index since 2006.

Prices increased (SA) in 20 of the 20 Case-Shiller cities in February seasonally adjusted (prices increased in 12 of 20 cities NSA). Prices in Las Vegas are off 55.0% from the peak, and prices in Denver only off 1.0% from the peak.

This was just above the consensus forecast for a 9.0% YoY increase. I'll have more on prices later.

Monday, April 29, 2013

Tuesday: Case-Shiller House Prices, Chicago PMI, Consumer Confidence

by Bill McBride on 4/29/2013 08:35:00 PM

Earlier today from LPS: U.S. Home Prices Up 1.0 Percent for the Month; Up 7.3 Percent Year-Over-Year. LPS reported their House Price Index increased to $210,000 in February, up from $208,000 or 1.0% from January - and up from $196,000 or 7.3% from February 2012. The LPS index is 20.6% below the peak in 2006.

Tuesday economic releases:
• At 9:00 AM ET, the S&P/Case-Shiller House Price Index for February will be released. Although this is the February report, it is really a 3 month average of December, January and February. The consensus is for a 9.0% year-over-year increase in the Composite 20 index (NSA) for February. The Zillow forecast is for the Composite 20 to increase 8.9% year-over-year, and for prices to increase 0.7% month-to-month seasonally adjusted.

• At 9:45 AM, the Chicago Purchasing Managers Index for April. The consensus is for the index to be unchanged at 52.4.

• At 10:00 AM, the Conference Board's consumer confidence index for April. The consensus is for the index to increase to 62.0 from 59.7.

• Also at 10:00 AM, the Census Bureau will release the Q1 Housing Vacancies and Homeownership report. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track other measures (like the decennial Census and the ACS) and this survey probably shouldn't be used to estimate the excess vacant housing supply.

Q1 2013 GDP Details: Single Family investment increases, Commercial Investment very Low

by Bill McBride on 4/29/2013 04:56:00 PM

The BEA released the underlying details for the Q1 advance GDP report today.

The first graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

A few key points:
1) Usually the most important components are investment in single family structures followed by home improvement. However home improvement has been the top category for eighteen consecutive quarters, but that is about to change. Investment in single family structures should be the top category again by Q2 or Q3.

2) Even though investment in single family structures has increased significantly from the bottom, single family investment is still very low - and still below the bottom for previous recessions. I expect further increases over the next few years.

3) Look at the contribution from Brokers' commissions. This is the category related to existing home sales (this is the contribution to GDP from existing home sales). If existing home sales are flat, or even decline due to fewer foreclosures, this will have little impact on residential investment.

Residential Investment ComponentsClick on graph for larger image.

Investment in home improvement was at a $161 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (about 1.0% of GDP), still above the level of investment in single family structures of  (corrected) $157 billion (SAAR) (or 0.98% of GDP).  Single family structure investment will probably overtake home improvement as the largest category of residential investment next quarter.

The second graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level.

Investment in offices is down about 54% from the recent peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years - even though there has been some increase in the Architecture Billings Index lately.

Office Investment as Percent of GDP Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 65% from the peak (note that investment includes remodels, so this will not fall to zero).   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 75%.   With the hotel occupancy rate close to normal, it is possible that hotel investment will increase this year.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.

Existing Home Inventory is up 12.1% year-to-date on April 29th

by Bill McBride on 4/29/2013 01:05:00 PM

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly this year. 

In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year (to normalize the data).

In 2010 (blue), inventory mostly followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

Exsiting Home Sales Weekly dataClick on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

In 2010, inventory was up 15% by the end of March, and close to 20% by the end of April.

For 2011 and 2012, inventory only increased about 5% at the peak and then declined for the remainder of the year.

So far in 2013, inventory is up 12.1%. This is well above the peak percentage increases for 2011 and 2012 and suggests to me that inventory is near the bottom. It is possible that inventory could bottom this year - especially if inventory is up 15% to 18% from the seasonal lows by mid-to-late summer.

It will probably be close.  Inventory might have already bottomed in early 2013, or might bottom in early 2014.   This will be important for price increases ... once inventory starts to increase (more than seasonal), buyer urgency will wane, and I expect price increases will slow.

Dallas Fed: Regional Manufacturing Activity "stalls" in April

by Bill McBride on 4/29/2013 10:38:00 AM

This is the last of the regional manufacturing surveys for April. From the Dallas Fed: Growth in Texas Manufacturing Activity Stalls

Texas factory activity was flat in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 9.9 to -0.5. The near-zero reading indicates output was little changed from March levels.

Ebbing growth in manufacturing activity was reflected in other survey measures as well. The capacity utilization index came in at 2.7, down from 5.5, and the shipments index fell to zero after rising to 10.6 in March. The new orders index fell nearly 14 points to -4.9, posting its first negative reading this year.

Perceptions of broader business conditions worsened in April. The general business activity index plummeted from 7.4 to -15.6, reaching its lowest level since July 2012.

Labor market indicators remained mixed. The employment index has been in positive territory so far in 2013 and moved up to 6.3 in April. ... The hours worked index pushed further negative, from -2.4 to -6.5.
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 (dashed green, through April), and five Fed surveys are averaged (blue, through April) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through March (right axis).

The ISM index for April will be released Wednesday, May 1st, and these surveys suggest a lower reading, possibly even at or below 50 (contraction).

Pending Home Sales index increases in March

by Bill McBride on 4/29/2013 10:00:00 AM

From the NAR: March Pending Home Sales Improve but Overall Pace Leveling

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 1.5 percent to 105.7 in March from a downwardly revised 104.1 in February, and is 7.0 percent above March 2012 when it was 98.8. Pending sales have been above year-ago levels for the past 23 months; the data reflect contracts but not closings.
...
The PHSI in the Northeast was unchanged at 82.8 in March and is 6.3 percent higher than March 2012. In the Midwest the index increased 0.3 percent to 103.8 in March and is 13.7 percent above a year ago. Pending home sales in the South rose 2.7 percent to an index of 120.0 in March and are 10.4 percent higher than March 2012. In the West the index increased 1.5 percent in March to 102.9 but is 4.3 percent below a year ago.
Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in April and May.

As I've noted several times, with limited inventory at the low end and fewer foreclosures, we might see flat or even declining existing home sales. The key is that the number of conventional sales is increasing while foreclosures and short sales decline - and that is a sign of an improving market, even if total sales decline.

Personal Income increased 0.2% in March, Core PCE prices up 1.1% year-over-year

by Bill McBride on 4/29/2013 08:30:00 AM

The BEA released the Personal Income and Outlays report for March:

Personal income increased $30.9 billion, or 0.2 percent ... in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $21.0 billion, or 0.2 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in March, the same increase as in February. ... PCE price index -- The price index for PCE decreased 0.1 percent in March, in contrast to an increase of 0.4 percent in February. The PCE price index, excluding food and energy, increased less than 0.1 percent, compared with an increase of 0.1 percent.
...
Personal saving -- DPI less personal outlays -- was $329.1 billion in March, compared with $330.9 billion in February. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 2.7 percent in March, the same as in February.
The following graph shows real Personal Consumption Expenditures (PCE) through March (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.   PCE for both January and February were revised down slightly.

As reported on Friday in the advance GDP report, PCE increased at a 3.2% annual rate in Q1. 

A key point is that the PCE price index was only up 1.0% year-over-year (1.1% for core PCE).   Core PCE increased at a 0.4% annualized rate in March.  This will put pressure on the Fed to do more.

Sunday, April 28, 2013

Monday: Personal Income and Outlays, Pending Home Sales

by Bill McBride on 4/28/2013 08:54:00 PM

First a couple of articles ...

From Jon Hilsenrath at the WSJ: Tame Inflation to Keep Fed on Course

With inflation now lower than the Fed wants, officials are likely to conclude their policies show no sign of overheating the economy. That allows them to maintain their $85 billion-a-month bond-buying program ...

Several Fed officials have changed the way they are talking about inflation. In a late March speech, New York Fed President William Dudley described inflation as "below" the Fed target. In mid-April, after new inflation data emerged, he described it as "well below" target, the kind of subtle change central-bank officials often deploy after careful deliberation.

"If inflation is lower and continues to go lower than our target, that would be another reason potentially for not pulling back on our program," said Eric Rosengren, president of the Boston Fed, in an interview this month. [James Bullard, president of the Federal Reserve Bank of St. Louis] said he would consider supporting an increase in bond purchases if inflation fell much further.
Too little inflation is a growing concern at the Fed.

And from Ben Casselman at the WSJ: Demographics Behind Smaller Workforce. I've discussed the participation rate a number of times - see: Labor Force Participation Rate Update, Understanding the Decline in the Participation Rate and Update: Further Discussion on Labor Force Participation Rate - the key point is that most of the recent decline in the participation rate was expected because of demographics.

Monday economic releases:
• At 8:30 AM ET, The BEA will release the Personal Income and Outlays report for March. The consensus is for a 0.4% increase in personal income in March, and for 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 10:00 AM, the NAR will release their Pending Home Sales Index for March. The consensus is for a 0.7% increase in this index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for April will be released. The consensus is a decrease to 5.0 from 7.4 in March (above zero is expansion).

Weekend:
Summary for Week ending April 26th
Schedule for Week of April 28th

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 6 and Dow futures are down 19 (fair value).

Oil prices were up over the last week with WTI futures at $92.56 per barrel and Brent at $102.70 per barrel.

According to Gasbuddy.com, gasoline prices are down about 25 cents over the last 2 months to $3.48 per gallon. Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be around $3.41 per gallon. That is about 7 cents below the current level according to Gasbuddy.com, so I expect gasoline prices to fall some more.

FOMC Preview: Inflation Watch

by Bill McBride on 4/28/2013 03:09:00 PM

The Federal Open Market Committee (FOMC) is meeting on Tuesday and Wednesday, with the FOMC statement expected to be released at 2:00 PM ET on Wednesday.

Expectations are the FOMC will take no action at this meeting (the FOMC will probably not adjust the size of their purchases of agency mortgage-backed securities and Treasury securities).

Since the most recent meeting in March, the incoming data has been a little weaker, so the FOMC will probably adjust the wording of the statement.   For growth, there will probably be some slight changes to the first sentence in the March statement:

Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated.
Perhaps something like (from the April 2011 statement):
Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.
A key will be to watch the comments on inflation. From the March meeting:
Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices.
Since then, it appears inflation has fallen even more, even excluding energy prices. Core PCE inflation is probably running close to 1.2% year-over-year, and other key measures of inflation are trending down.   This decline in inflation is probably becoming a concern for some FOMC participants.

As a reminder, here are the quarterly projections from the March meeting.  For GDP,  the Q1 advance report released last week probably wouldn't change the outlook.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1201320142015
Mar 2013 Meeting Projections2.3 to 2.82.9 to 3.42.9 to 3.7
1 Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 7.6% in March, and the outlook for Q4 unemployment probably hasn't changed.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2201320142015
Mar 2013 Meeting Projections7.3 to 7.5 6.7 to 7.06.0 to 6.5
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

For inflation, PCE inflation was up 1.2% year-over-year in Q1, and only increased at a 0.9% annualized rate in Q1.  This is below the FOMC projected range and is probably a growing concern.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1201320142015
Mar 2013 Meeting Projections1.3 to 1.71.5 to 2.01.7 to 2.0

The BEA will release core PCE for March tomorrow, and core inflation is also expected to be below the FOMC projections.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1201320142015
Mar 2013 Meeting Projections1.5 to 1.61.7 to 2.01.8 to 2.0

Public and Private Sector Payroll Jobs: Bush and Obama

by Bill McBride on 4/28/2013 10:33:00 AM

With public sector jobs down over the last several years (Federal, State and local layoffs), several readers have asked if I could update the graphs comparing public and private sector job losses (or added) for President George W. Bush's two terms (following the stock market bust), and for President Obama tenure in office so far (following the housing bust and financial crisis).

Important: There are many differences between the two periods. Both followed the bursting of a bubble (stock and housing), although the housing bust also led to a severe financial crisis.

The first graph shows the change in private sector payroll jobs from when Mr. Bush took office (January 2001) compared to Mr. Obama's tenure (from January 2009).  

Mr. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble.  Mr Obama (blue) took office during the financial crisis and great recession.

Private Sector Payrolls Click on graph for larger image.

The employment recovery during Mr. Bush's first term was very sluggish, and private employment was down 946,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 665,000 jobs lost during Mr. Bush's two terms. 

The recovery has been sluggish under Mr. Obama's presidency too, and there were only 1,933,000 more private sector jobs at the end of Mr. Obama's first term.  A couple of months into Mr. Obama's second term, there are now 2,282,000 more private sector jobs than when he took office.

Public Sector Payrolls A big difference between Mr. Bush's tenure in office and Mr. Obama's presidency has been public sector employment. The public sector grew during Mr. Bush's term (up 1,748,000 jobs), but the public sector has declined since Obama took office (down 718,000 jobs). These job losses have mostly been at the state and local level, but they are still a significant drag on overall employment.

Another important difference: I started warning about the housing bubble in 2004, and I started this blog in January 2005 - the beginning of Mr. Bush's 2nd term.  My focus in 2005 was on the housing bubble and coming recession.  Now - at a similar point in Mr. Obama's tenure - I expect the economy to continue to expand, so I don't expect a sharp decline in employment as happened at the end of Mr. Bush's 2nd term.

Yesterday:
Summary for Week ending April 26th
Schedule for Week of April 28th

Saturday, April 27, 2013

Schedule for Week of April 28th

by Bill McBride on 4/27/2013 04:06:00 PM

This will be a very busy week for economic data. The key report week is the April employment report on Friday.

Other key reports include the Case-Shiller house price index on Tuesday, the ISM manufacturing index on Wednesday, vehicle sales for April also on Wednesday, the March trade report on Thursday, and the ISM service index on Friday.

Also, there is an FOMC meeting on Tuesday and Wednesday.


----- Monday, Apr 29th -----

8:30 AM ET: Personal Income and Outlays for March. The consensus is for a 0.4% increase in personal income in March, and for 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM ET: Pending Home Sales Index for March. The consensus is for a 0.7% increase in this index.

10:30 AM: Dallas Fed Manufacturing Survey for April. The consensus is a decrease to 5.0 from 7.4 in March (above zero is expansion).

----- Tuesday, Apr 30th -----

Case-Shiller House Prices Indices9:00 AM: S&P/Case-Shiller House Price Index for February. Although this is the February report, it is really a 3 month average of December, January and February.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through January 2013 (the Composite 20 was started in January 2000).

The consensus is for a 9.0% year-over-year increase in the Composite 20 index (NSA) for February. The Zillow forecast is for the Composite 20 to increase 8.9% year-over-year, and for prices to increase 0.7% month-to-month seasonally adjusted.

9:45 AM: Chicago Purchasing Managers Index for April. The consensus is for the index to be unchanged at 52.4.

10:00 AM: Conference Board's consumer confidence index for April. The consensus is for the index to increase to 62.0 from 59.7.

10:00 AM: Q1 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track other measures (like the decennial Census and the ACS) and this survey probably shouldn't be used to estimate the excess vacant housing supply.

----- Wednesday, May 1st -----

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

8:15 AM: The ADP Employment Report for April. This report is for private payrolls only (no government). The consensus is for 155,000 payroll jobs added in April.  

9:00 AM: The Markit US PMI Manufacturing Index for April. The consensus is for a decrease to 52.0 from 54.6 in March.

ISM PMI10:00 AM ET: ISM Manufacturing Index for April. The consensus is for a decrease to 51.0 from 51.3 in March.  Based on the regional surveys, a reading below 50 is possible.

Here is a long term graph of the ISM manufacturing index. The ISM manufacturing index indicated expansion in March at 51.3% in March. The employment index was at 54.2%, and the new orders index was at 51.4%. 

10:00 AM: Construction Spending for March. The consensus is for a 0.6% increase in construction spending.

2:00 PM: FOMC Meeting Announcement.  No change to interest rates or QE purchases is expected at this meeting.

Vehicle SalesAll day: Light vehicle sales for April. The consensus is for light vehicle sales to be at 15.3 million SAAR in March (Seasonally Adjusted Annual Rate) unchanged from 15.3 SAAR in March.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the March sales rate.

----- Thursday, May 2nd -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 345 thousand from 339 thousand last week.

U.S. Trade Exports Imports8:30 AM: Trade Balance report for March from the Census Bureau.

Exports increased in February, and imports were essentially flat.

The consensus is for the U.S. trade deficit to decrease to $42.4 billion in March from $43.0 billion in February.

----- Friday, May 3rd -----

Payroll jobs added per month 8:30 AM: Employment Report for April. The consensus is for an increase of 153,000 non-farm payroll jobs in April; the economy added 88,000 non-farm payroll jobs in March.

The consensus is for the unemployment rate to be unchanged at 7.6% in April.

The second employment graph shows the percentage of payroll jobs lost during post WWII recessions through January.


Percent Job Losses During Recessions The economy has added 6.5 million private sector jobs since employment bottomed in February 2010 (5.9 million total jobs added including all the public sector layoffs).

There are still 2.3 million fewer private sector jobs now than when the recession started in 2007.

10:00 AM: ISM non-Manufacturing Index for April. The consensus is for a reading of 54.0, down from 54.4 in March. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for March. The consensus is for a 2.8% decrease in orders.

Summary for Week ending April 26th

by Bill McBride on 4/27/2013 11:21:00 AM

There was some disappointing data released last week. First quarter real GDP only increased at a 2.5% annual rate, durable goods orders fell more than expected, and most of the manufacturing data (regional surveys, flash PMI) were weak.

However, some of the underlying GDP details were decent (but not great). Final demand increased in Q1 as personal consumption expenditures (PCE) increased at a 3.2% annual rate (up from 1.8% in Q4 2012), and residential investment (RI) increased at a 12.6% annual rate (down  from 17.6% in Q4).  This was the strongest private domestic contribution (PCE and RI) since Q4 2010, and the 2nd strongest quarter since the recession began.

Unfortunately I expect PCE to slow over the next couple of quarters due to a combination of the payroll tax increase and the sequester budget cuts.

There was also some good news. The new home sales report for March indicated an ongoing recovery for housing, and the existing home sales report suggested an improving market (more conventional sales, fewer distressed sales). Also on housing, LPS reported that the number of non-current mortgages fell below 5 million for the first time since  2008.

Other good news included a drop in initial weekly unemployment claims, and increasing demand for architectural design services (a leading indicator for commercial real estate).

Overall this suggests sluggish growth.

Here is a summary of last week in graphs:

Real GDP increased 2.5% Annualized in Q1

Q1 GDPClick on graph for larger image.

The BEA reported that "real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013". This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years.

The Red column (and dashed line) is the advance estimate for Q1 GDP.

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

State and Local Government Residential Investment GDPThe blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 8 quarters (through Q1 2013).

However the drag from state and local governments is ongoing.   I was expecting the drag from state and local governments to end, but this unprecedented and relentless decline in state and local government spending is still a drag on the economy. The good news is the drag has to end soon - in real terms, state and local government spending is back to early 2001 levels.

Residential InvestmentResidential Investment as a percent of GDP is up from the record lows during the housing bust. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units.   Clearly RI has bottomed, but it still below the levels of previous recessions.

Overall this was a mediocre report and below expectations, mostly due to government spending and trade.  The increase in PCE and RI were positives, but the ongoing government budget cuts continue to slow the economy.

New Home Sales at 417,000 SAAR in March

New Home Sales The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 417 thousand. This was up from 411 thousand SAAR in February. 

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

New Home Sales, InventoryThis graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is just above the record low. The combined total of completed and under construction is also just above the record low.

This was at expectations of 419,000 sales in March, and a fairly solid report. 

Existing Home Sales in March: 4.92 million SAAR, 4.7 months of supply

Existing Home SalesThe NAR reports: March Existing-Home Sales Slip Due to Limited Inventory, Prices Maintain Uptrend

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in March 2013 (4.92 million SAAR) were 0.6% lower than last month, and were 10.3% above the March 2012 rate.

The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Year-over-year Inventory Inventory decreased 16.8% year-over-year in March compared to March 2012. This is the 25th consecutive month with a YoY decrease in inventory, but the smallest YoY decrease since 2011 (I expect the YoY decrease to get smaller all year).

Months of supply increased to 4.7 months in March.

This was below expectations of sales of 5.03 million, but close to Tom Lawler's forecast.  For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing. Overall his was a solid report.

AIA: Architecture Billings Index indicates increasing demand for design services in March

AIA Architecture Billing IndexNote: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: More Positive Momentum for Architecture Billings

This graph shows the Architecture Billings Index since 1996. The index was at 51.9 in February, down from 54.9 in February. Anything above 50 indicates expansion in demand for architects' services, and this was the eight consecutive month with a reading above 50.

Every building sector is now expanding and new project inquiries are strongly positive (down from February, but still at 60.1). Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index suggests some increase in CRE investment in the second half of 2013.

Weekly Initial Unemployment Claims decline to 339,000

The DOL reports:
In the week ending April 20, the advance figure for seasonally adjusted initial claims was 339,000, a decrease of 16,000 from the previous week's revised figure of 355,000. The 4-week moving average was 357,500, a decrease of 4,500 from the previous week's revised average of 362,000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 357,500.

Weekly claims were the lowest in six weeks and were below the 350,000 consensus forecast.

Final April Consumer Sentiment increases to 76.4

Consumer SentimentThe final Reuters / University of Michigan consumer sentiment index for April increased to 76.4 from the preliminary reading of 72.3, but down from the March reading of 78.6.

This was above the consensus forecast of 73.0, but still fairly low. There are a number of factors that impact sentiment including unemployment, gasoline prices and, for 2013, the payroll tax increase and even politics (sequestration, etc).  

Sentiment is mostly moving sideways over the last year at a fairly low level (with ups and downs).

Unofficial Problem Bank list declines to 775 Institutions

by Bill McBride on 4/27/2013 09:31:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Apr 26, 2013.

Changes and comments from surferdude808:

The FDIC, as anticipated, released its enforcement actions through March 2013 and closed a couple banks this week. This led to many changes to the Unofficial Problem Bank List, which had 12 removals and six additions. After changes, the list holds 775 institutions with assets of $285.3 billion. A year ago, the list held 930 institutions with assets of $361.7 billion.   
With it being the last Friday of the month, the list had a net decline of 16 institutions and $4.7 billion of assets this April. Notable this month were six removals because of failure as one has to go back to July 2012 to find six or more failures in a month. Also, as noted in the April 5th posting, the cumulative number of removals since the list was first published from action termination now total 356, which is only one shy of the 357 removals because of failure.

The removals from failure were Douglas County Bank, Douglasville, GA ($317 million) and Parkway Bank, Lenoir, NC ($109 million). Douglas County Bank is the 86th bank to fail in Georgia since 2008. The 86 failures in Georgia have cost the FDIC an estimated $11.5 billion.

Action terminations include Reliance Bank, Des Peres, MO ($914 million Ticker: RLBS); Mile High Banks, Longmont, CO ($822 million); Jefferson Bank and Trust Company, Eureka, MO ($504 million); International Bank, Raton, NM ($303 million); Huntington State Bank, Huntington, TX ($236 million); Century Bank of Kentucky, Inc., Lawrenceburg, KY ($108 million); First Bank of the Palm Beaches, West Palm Beach, FL ($90 million); First Bank, Wadley, AL ($73 million); and Mitchell Bank, Milwaukee, WI ($57 million). The FDIC also terminated a Prompt Corrective Action order against Mile High Banks.

The FDIC issued actions against State Bank of India (California), Los Angeles, CA ($787 million); Columbia Bank, Lake City, FL ($196 million); Hartford Savings Bank, Hartford, WI ($187 million); Peoples Bank, Clifton, TN ($131 million); and Mid America Bank, Janesville, WI ($114 million). The Federal Reserve issued a Written Agreement against Freedom Bank of Oklahoma, Tulsa, OK ($40 million). It has been some time since October 2012 when the Federal Reserve last issued a new Written Agreement against a state member bank.
CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The number of unofficial problem banks grew steadily and peaked at 1,002 institutions on June 10, 2011. The list has been declining since then.

Friday, April 26, 2013

The HARP Success Story

by Bill McBride on 4/26/2013 09:38:00 PM

From E. Scott Reckard at the LA Times: Federal refi program for underwater homeowners hits its stride

Nearly 1.1 million homeowners with little or no equity were able to refinance last year under HARP, which assists borrowers who are current on their monthly payments. That's nearly as many as in the three previous years combined, and the latest figures show that early this year, the pace of these refis abated only slightly.
...
"This is a program that has reached a lot of people — probably more underwater homeowners than anybody thought it would," said Guy Cecala, publisher of Inside Mortgage Finance. "It is also one of the few programs that has rewarded people who have stayed current on their mortgages."

The program has been successful because it addressed one of the hangover effects from the housing bust: the millions of Americans stranded in expensive, high-interest-rate loans. These borrowers owed too much on their homes and could not refinance.
The HARP program really took off when most of the representations and warranties associated with the original loans were eliminated (meaning the lenders would not be responsible for defects in the original loans) and after the automated systems were updated in March of 2012. Since these borrowers were current, and Fannie or Freddie already owned the loan, it made sense to allow them to refinance at a lower rate even if they owed more than their homes were worth (this lowered the risk of default for the GSEs). 

The FHFA thought this program would help close to 1 million homeowners - that estimate was too low!

Bank Failures #9 & 10 in 2013: North Carolina and Georgia

by Bill McBride on 4/26/2013 06:56:00 PM

From the FDIC: CertusBank, National Association, Easley, South Carolina, Assumes All of the Deposits of Parkway Bank, Lenoir, North Carolina

As of December 31, 2012, Parkway Bank had approximately $108.6 million in total assets and $103.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $18.1 million. ... Parkway Bank is the ninth FDIC-insured institution to fail in the nation this year, and the first in North Carolina.
From the FDIC: Hamilton State Bank, Hoschton, Georgia, Assumes All of the Deposits of Douglas County Bank, Douglasville, Georgia
As of December 31, 2012, Douglas County Bank had approximately $316.5 million in total assets and $314.3 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $86.4 million. ... Douglas County Bank is the 10th FDIC-insured institution to fail in the nation this year, and the second in Georgia.
Two more ... it is Friday!

Lawler: Selected Results (and Comments) from Large Publicly-Traded Builders for Last Quarter

by Bill McBride on 4/26/2013 01:46:00 PM

From economist Tom Lawler: Selected Results (and Comments) from Large Publicly-Traded Builders for Last Quarter; Consensus is Strong Spring Selling Season, Increased Pricing Power, Though Big Differences in Net Order Growth across Builders

Below is a table showing results on net home orders, home settlements, and average closing sales price for large publicly-traded home builders who have released results for the quarter ended March 31st, 2013. (These results include “discontinued operation”.)

Net order growth varied significantly across builders, to a large extent reflecting growth/margin strategies. E.g., PulteGroup’s average community count last quarter was down 14% from a year ago, reflecting its emphasis on “price, margin realization, and effective management of land assets” rather than growth, though it did increase its planned investments in land and development (see below), while other builders increased their community counts. NVR’s “sub-par” net order growth came despite a double-digit increase in its average community count.

The combined order backlog of these six builders on March 31, 2013 was 30,082, up 42.2% from last March.

 Net OrdersSettlementsAverage Closing Price
Qtr. Ended:3/31/133/31/12% Chg3/31/133/31/12% Chg3/31/133/31/12% Chg
D.R. Horton7,8795,89933.6%5,6434,24033.1%$242,548$219,48110.5%
PulteGroup5,2004,9914.2%3,8333,11723.0%$287,000$261,00010.0%
NVR3,5103,15711.2%2,2721,92418.1%$330,400$304,6008.5%
The Ryland Group2,0521,35751.2%1,31584855.1%$277,000$254,0009.1%
Meritage Homes1,5471,14435.2%1,05275938.6%$314,000$269,00016.7%
M/I Homes1,04776437.0%62750723.7%$284,000$249,00014.1%
Total21,23517,31222.7%14,74211,39529.4%$277,580$252,39110.0%

Here are a few select excerpts from some of the company’s press releases (NVR’s press release generally has no “color” comments.

Pulte: ‘“The stronger demand which the housing industry saw throughout 2012 has carried into the spring selling season of 2013. We experienced higher traffic in our communities with buyers feeling a greater sense of urgency given the combination of limited product inventory and rising prices found in many markets throughout the country. Within this environment, and aligned with our focus on generating higher returns, we continue to emphasize price, margin realization and effective management of land assets. Our successful execution of these strategies can be seen in the higher selling prices and improved margins achieved across each of our primary brands.

‘“Given the operational gains demonstrated by our strong first quarter results, and our expectations for an ongoing recovery in new home demand, we have again increased our authorized investment in land and development for 2013 and 2014 to $1.4 billion annually. The incremental investment, which amounts to approximately $200 million in each year, will be made using the defined and disciplined process we put in place more than 18 months ago.”

‘The higher average selling price reflects price increases implemented by the Company and a shift in the mix of closings toward move-up homes which carry higher prices.’

Ryland: For the first quarter of 2013, sales incentives and price concessions totaled 7.9 percent of housing revenues, compared to 10.9 percent for the same period in 2012.

Meritage: ‘"Housing demand is greater than the supply of homes available for sale in many of the areas where we operate, causing home prices to increase," Mr. Hilton explained. "To meet the higher demand, we opened 24 new communities during the first quarter and also grew our active community count to its highest point in almost four years. In addition, our 9.5 orders per average community for the quarter was a 27% increase over 2012 even as we raised prices in many communities. As a result, we received orders for 35% more homes for a 69% increase in total order value compared to the first quarter of 2012. We are pricing our homes and limiting the number of lots we're releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit from those communities."’

M/I Homes: ‘With housing conditions continuing to improve, we are optimistic about our business and look for continued growth.’

D.R. Horton: ‘Donald R. Horton, Chairman of the Board, said, “The spring selling season is off to a strong start at D.R. Horton, with robust demand driving higher sales volumes and favorable pricing, which is reflected in the 14% increase in our average selling price. (LEHC note: this refers to the average net order price; the average sales price on homes closed last quarter was up 10.5% from a year ago.) We are in an excellent position to continue to meet increased sales demand and aggregate market share with 15,800 homes in inventory and 175,000 lots owned or controlled under option contracts, of which 58,000 lots are fully developed.’

Q1 GDP and Investment

by Bill McBride on 4/26/2013 11:40:00 AM

Final demand increased in Q1 as personal consumption expenditures (PCE) increased at a 3.2% annual rate (up from 1.8% in Q4 2012), and residential investment (RI) increased at a 12.6% annual rate (down  from 17.6% in Q4).  This was the strongest private domestic contribution (PCE and RI) since Q4 2010, and the 2nd strongest quarter since the recession began.

Unfortunately PCE will probably slow over the next couple of quarters as the sequester budget cuts ripple through the economy. 

The negative contributions came from less Federal Government spending (subtracted 0.65 percentage points), less state and local governments spending (subtracted 0.14 percentage points) and from trade (subtracted 0.50 percentage points).

Overall this was a medicore report and below expectations (mostly due to government spending and trade).  The increase in PCE and RI were positives, but the ongoing government budget cuts continue to slow the economy. 

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Investment ContributionsClick on graph for larger image.

Residential Investment (RI) made a positive contribution to GDP in Q1 for the eight consecutive quarter. Usually residential investment leads the economy, but that didn't happen this time because of the huge overhang of existing inventory, but now RI is contributing.

Equipment and software investment was positve in Q1, however the contribution from nonresidential investment in structures was slightly negative (the three month centered average was still positive). Nonresidential investment in structures typically lags the recovery, however investment in energy and power has masked the ongoing weakness in office, mall and hotel investment (the underlying details will be released next week).

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

State and Local Government Residential Investment GDPThe blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 8 quarters (through Q1 2013).

However the drag from state and local governments is ongoing.   I was expecting the drag from state and local governments to end, but this unprecedented and relentless decline in state and local government spending is still a drag on the economy. The good news is the drag has to end soon - in real terms, state and local government spending is back to early 2001 levels.

Residential InvestmentResidential Investment as a percent of GDP is up from the record lows during the housing bust. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units.   Clearly RI has bottomed, but it still below the levels of previous recessions.

I'll break down Residential Investment (RI) 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 last graph shows non-residential investment in structures and equipment and software.

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

The key story is that residential investment is continuing to increase, and I expect this to continue. Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2014 (with the usual caveats about Europe and policy errors in the US).

Final April Consumer Sentiment increases to 76.4

by Bill McBride on 4/26/2013 09:55:00 AM

Consumer Sentiment
Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for April increased to 76.4 from the preliminary reading of 72.3, but down from the March reading of 78.6.

This was above the consensus forecast of 73.0, but still fairly low. There are a number of factors that impact sentiment including unemployment, gasoline prices and, for 2013, the payroll tax increase and even politics (sequestration, etc).  

Sentiment is mostly moving sideways over the last year at a fairly low level (with ups and downs).

Real GDP increased 2.5% Annualized in Q1

by Bill McBride on 4/26/2013 08:38:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
Personal consumption expenditures (PCE) increased at a 3.2% annualized rate, and residential investment increased 12.6%.  However equipment and software increased only 3.0%, and non-residential investment in structures declined slightly. 

"Change in private inventories" added 1.03 percentage points to GDP in Q1 (reversing most of the decline last quarter), and the Federal government subtracted 0.65 percentage points (mostly a decrease in defense spending).  State and local governments continued to decline.

This was below expectations of a 3.1% growth rate, but domestic demand was decent with PCE and private investment increasing. I'll have more on GDP later ...

Thursday, April 25, 2013

Friday: Q1 GDP

by Bill McBride on 4/25/2013 08:47:00 PM

An interesting piece from Michelle Meyer at Merrill Lynch: Housing watch: Who are the buyers?

One of the common misconceptions is that the gain in housing demand owes primarily to investors and international buyers. In Q1, investors made up about 22% of sales, which is close to the average since mid-2010. International buyers made up about 2% of sales in Q1, which again matches the historical average over the past three years. Of course, in certain markets investors and international buyers play a bigger role. Investors buy a disproportionate share of distressed properties, making them more relevant in markets with high delinquencies. Similarly, in big cities such as New York, Miami and San Francisco, international buyers account for a much larger share of sales.

Primary homebuyers are still the largest share of the market, by far. However, the constraint for primary homebuyers is tight credit conditions. This has resulted in a greater share of all-cash purchases. Over 20% of buyers who are looking to relocate (turnover) and 60% of second home buyers use only cash. First-time homebuyers are still reliant on financing as only 11% of sales are all cash among this cohort. And of course, the most extreme is investors and international buyers where about three-quarters of purchases are all-cash. All together, about a third of sales are made without financing. As credit conditions gradually ease, which we anticipate, the housing market will open to a wider range of buyers, particularly first-time owners.
emphasis added
Meyer argues a large percentage of the cash buyers are not investors.

Friday economic releases:
• At 8:30 AM ET, the BEA will release the advance Q1 GDP report. The consensus is that real GDP increased 3.1% annualized in Q1.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for April). The consensus is for a reading of 73.0, up from 72.3.

WSJ: "Unemployment Hits New Highs in Spain, France"

by Bill McBride on 4/25/2013 05:59:00 PM

This is no surprise ... from the WSJ: Unemployment Hits New Highs in Spain, France

The jobless rate in Spain rose sharply to 27.2% of the workforce in the first quarter, the highest level since records began in the 1970s. In France, the number of registered job seekers who are fully unemployed rose to more than 3.2 million, topping a previous record set in 1997.
...
Last week, the International Monetary Fund joined the U.S. in saying the euro zone should ease up on belt-tightening, arguing it was holding back the global economic recovery and could end up being self-defeating. The head of the European Commission said Monday the policy had "reached its limits."
Maybe, just maybe, policymakers in Europe will get the message that the almost singular focus on deficit reduction has been a policy mistake. 

Zillow: Rate of Home Value Appreciation Slows Nationwide in Q1

by Bill McBride on 4/25/2013 03:21:00 PM

From Zillow: Rate of Home Value Appreciation Slows Nationwide in Q1, But Pockets of Volatility Remain

Zillow’s first quarter Real Estate Market Reports, released today, show home values increased 0.5% from the fourth quarter of 2012 to the first quarter of 2013 to $157,600. This quarter marks five consecutive quarters of national home value appreciation. On an annual basis, the Zillow Home Value Index (ZHVI) rose 5.1% from March 2012 levels. While home values are still experiencing above normal annual home value appreciation we are seeing signs of deceleration. Monthly appreciation, albeit positive, has been continuously getting smaller, and national home values grew by only 0.1% for the past two months. This does not come as a surprise as appreciation rates have been unsustainable, especially in some of the markets harder hit by the housing recession. ...

According to the Zillow Home Value Forecast (ZHVF), we expect national home values to increase 3.2% over the next year (March 2013 to March 2014).
This report is through Q1, the most recent Case-Shiller release was for January.

We are starting to see a little more inventory - probably in response to the recent price increases - and it would make sense that with more inventory, the pace of price increases would slow.

Note: Here are the Zillow Home Value Indexes by city.

Update: CoreLogic acquires Case-Shiller

by Bill McBride on 4/25/2013 12:52:00 PM

Last night I mentioned that CoreLogic had acquired Case-Shiller house price index, and I wondered if there would be changes to how the index was released. The answer is nothing will change ...

From CoreLogic: CoreLogic Acquires Case-Shiller

CoreLogic® ... announced the acquisition of Case-Shiller® from Fiserv, Inc. ...

In addition to the widely recognized Case-Shiller Indexes, CoreLogic will continue to offer its CoreLogic HPI® ... The CoreLogic HPI and the Case-Shiller Indexes are complementary measures of home price trends utilizing the same baseline methodology of repeat home sales.

The Case-Shiller Indexes will be renamed the CoreLogic Case-Shiller Indexes. The S&P/Case-Shiller Home Price Indices will retain their brand name. The CoreLogic HPI, CoreLogic Case-Shiller Indexes, and S&P/Case-Shiller Home Price Indices reports will continue to be published and distributed on their customary time schedules and in their current formats.

Dr. David Stiff, chief economist for Case-Shiller, will continue to supervise the preparation of the CoreLogic Case-Shiller Indexes and comment on the findings of those indexes. Dr. Mark Fleming, chief economist for CoreLogic, will continue to supervise the preparation of the CoreLogic HPI reports and comment on the findings of those reports.
Only the name (and ownership) has changed.

Kansas City Fed: Regional Manufacturing contracted "modestly" in April

by Bill McBride on 4/25/2013 11:00:00 AM

So far all of the regional manufacturing surveys have indicated April was pretty weak. From the Kansas City Fed: Tenth District Manufacturing Survey Fell Modestly

The Federal Reserve Bank of Kansas City released the April Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity fell by a similar modest amount as last month, and producers' expectations moderated but remained positive overall.

"We saw another small decline in regional factory activity this month," said Wilkerson. "Some firms see signs of a pickup in activity later this year driven by pent up demand and new product offerings, but others have become more pessimistic recently as anticipated demand has failed to materialize."

The month-over-month composite index was -5 in April, equal to -5 in March but up from -10 in February ... The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Durable goods-producing plants reported a smaller decline in activity, but production at nondurable-goods plants fell after increasing last month, particularly for food and plastics products. Most other month-over-month indexes improved somewhat. The production index edged higher from -1 to 1, and the shipments index also increased, with both indexes moving into positive territory for the first time in 8 months. The employment index rebounded from -15 to -3, and the order backlog index also rose. The new orders and new orders for exports indexes were basically unchanged. Both inventory indexes fell further into negative territory after increasing last month.
The last regional survey for April will be released next Monday (Dallas), and the ISM index for April will be released on Wednesday, May 1st. Based on the regional surveys, I expect a fairly weak reading for the ISM index (perhaps at or below 50).

Weekly Initial Unemployment Claims decline to 339,000

by Bill McBride on 4/25/2013 08:35:00 AM

The DOL reports:

In the week ending April 20, the advance figure for seasonally adjusted initial claims was 339,000, a decrease of 16,000 from the previous week's revised figure of 355,000. The 4-week moving average was 357,500, a decrease of 4,500 from the previous week's revised average of 362,000.
The previous week was revised up from 352,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 357,500.

Weekly claims were the lowest in six weeks and were below the 350,000 consensus forecast.

Wednesday, April 24, 2013

Thursday: Weekly Unemployment Claims

by Bill McBride on 4/24/2013 07:50:00 PM

Interesting ... CoreLogic acquires Case-Shiller:

On March 20, 2013, the Company acquired Case-Shiller from Fiserv, Inc. for approximately $6.0 million. Case-Shiller, one of the most widely recognized experts in home price trends and property valuation services, is a highly complementary addition to CoreLogic’s existing residential property insights platform.
Currently Case-Shiller is the most followed house price index, but I also use CoreLogic, Zillow and others ... it isn't clear what CoreLogic's plans are with this acquisition (will they release both or just focus on Case-Shiller?)

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 350 thousand from 352 thousand last week. The "sequester" budget cuts might be starting to impact weekly claims.

• At 11:00 AM, Kansas City Fed regional Manufacturing Survey for April. The consensus is for a reading of minus 1, up from minus 5 in March (below zero is contraction).

Lawler: How Much Has the Single Family Housing Market Shifted to Rentals (in numbers)?

by Bill McBride on 4/24/2013 04:05:00 PM

From economist Tom Lawler:

While good, reliable, consistent, and timely government data on the housing stock and housing tenure do not exist, the limited data available suggest that over the last few years (1) there has been a sizable increase in the number of SF housing units occupied by renters; (2) a decent-sized decline in the number of SF housing units occupied by owners; and (3) this trend began several years ago, and several years before widely-publicized “institutional” investor buying emerged.

Estimates of the SHARE of SF housing units occupied by owners vs. renters are available from the American Community Survey annually from 2006 through 2011 and biennially from the American Housing Survey through 2011, and “imprecise” estimates of the owner vs. renter share of “one-unit” structures can be derived from the detailed tables of the Housing Vacancy Survey through 2012 – though rental and homeowner vacancy rates for “one-unit” structures in the HVS include not just SF detached and attached homes but also manufactured/mobile homes. All three surveys show a substantial increase in the share of SF/one-units occupied homes occupied by renters from 2007 to 2011, and the HVS data show a continued share increase in 2012. Both the AHS and the HVS, however, appear to overstated significantly overall homeownership rates (based on a comparison to decennial Census results), while the ACS homeownership rates seem more consistent with decennial Census data. As such, I believe the ACS data on the renter share of the SF housing market is superior to the AHS and HVS data.

Rental Share Single Family Housing Market Click on graph for larger image.

Note: The estimate for 2012 is based on the 2012 vs. 2011 change in the HVS estimate of the renter share of occupied “one-unit” structures.

Translating the ACS share data to numbers, however, requires a little work. First, the numbers for households in the annual ACS results are “benchmarked” to the latest available housing stock estimate for that year, and there have been significant upward revisions in housing stock estimates. Second, the latest available “official” housing stock estimates do not incorporate post-Census analyses of the estimated “undercount” of housing units in the “official” Census numbers. And finally, the ACS appears to overstate the overall housing vacancy rate, though by less than the HVS or AHS. Unfortunately, adjusted for this last factor is difficult, since the degree of the vacancy rate “overstatement” is only available for 2010. As such, I only adjusted the ACS estimates for more reasonable estimates of the housing stock (incorporating the Census 2000 HUCS and the Census 2010 CCM).

Making this adjustment, and using estimates for the 2012 ACS data based on HVS results, it would appear that from 2007 to 2012 the number of SF detached and attached homes that were occupied by renters increased by about 2.6 million, while the number of SF detached and attached homes that were occupied by owners declined by about 1.3 million. The largest increase in both the number and the share of renter-occupied SF homes appears to have been in 2009.

Since “active” investor buying of SF homes that were then rented out has been going on for many years, why has the media only recently begun to focus intently on this “trend? First, investor buying in earlier years occurred when for-sale inventories (and REO inventories) and the pace of foreclosure were high, the economy in general and labor markets in particular were extremely weak, and there were no signs either of a housing “recovery” or improving home prices. Second, last year a number of large institutional firms very publicly announced plans to ramp up purchases of SF homes as rental properties. Third, their ramped-up buying came when overall inventories of existing home for sale, and especially “distressed”/REO properties for sale, had fallen sharply, as well as when an improved economy and record-low mortgage rates were producing a modest increase in potential demand from folks wanting to buy a home to live in. (Folks love anecdotal stories about how investors are “out-bidding” or “crowding out” first-time home buyers!)

And finally, their (and other) aggressive buying in the face of sharply lower inventories (large institutional investors appear to have lower “hurdle rates” than “traditional” investors) has helped fuel a significant recovery in home prices in many parts of the country (oh my, more “de-stickification!”)

All-Cash Share of Home Sales (Yearly Totals)
 PhoenixTucsonCalifornia*Florida SFFlorida C/THKnoxvilleOmaha
200711.6%12.6%10.3%N/AN/A12.4%N/A
200812.6%18.8%18.7%25.5%43.6%15.2%12.1%
200937.2%23.9%26.3%36.8%64.0%17.8%11.8%
201041.8%28.3%28.0%42.3%73.2%22.1%16.7%
201146.9%34.6%30.4%45.5%76.6%24.5%20.2%
201246.0%34.4%32.6%45.7%75.6%26.6%17.6%
*Derived from Dataquick chart; new and resale homes based on property records, all others MLS based.

In 2010 there were 141,722 MLS-based home sales (SF and C/TH) in Florida that were all-cash transactions, while there were 79,779 foreclosure sales and 53,780 short sales. In 2012 there were 54,607 foreclosure sales and 63,250 short sales (or 117,867 “distressed” sales, down 15,692 from 2010), but all-cash transactions increased by 28,647 to 170,369.

From 2009 to 2012 MLS-based home sales in Florida increased by 24.2%. All-cash transactions increased by 54.1%, while mortgage-financed transactions were very slightly LOWER in 2012 compared to 2009.