Thursday, October 31, 2013

Friday: Vehicle Sales, ISM Manufacturing Index

by Bill McBride on 10/31/2013 09:08:00 PM

From Freddie Mac: Fixed Mortgage Rates Decline for Second Consecutive Week

Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates declining for the second consecutive week amid recent data showing softening in the housing market. Fixed mortgage rates are at their lowest levels since June.

30-year fixed-rate mortgage (FRM) averaged 4.10 percent with an average 0.7 point for the week ending October 31, 2013, down from last week when it averaged 4.13 percent. A year ago at this time, the 30-year FRM averaged 3.39 percent.

"Fixed mortgage rates eased further leading up to the Federal Reserve's (Fed) October 30th monetary policy announcement. The Fed saw improvement in economic activity and labor market conditions since it began its asset purchase program, but noted the recovery in the housing market slowed somewhat in recent months and unemployment remains elevated. As a result, there was no policy change which should help sustain low mortgage rates in the near future." [said Frank Nothaft, vice president and chief economist, Freddie Mac].
emphasis added
30 year rates peaked this year at 4.58% on August 22nd in the Freddie Mac survey. This is the lowest level since late June.

Friday:
• All day, Light vehicle sales for October. The consensus is for light vehicle sales to increase to 15.4 million SAAR in October (Seasonally Adjusted Annual Rate) from 15.2 million SAAR in September.

• At 9:00 AM, the Markit US PMI Manufacturing Index for October.

• At 10:00 AM ET, the ISM Manufacturing Index for October. The consensus is for a decrease to 55.0 from 56.2 in September. The ISM manufacturing index indicated expansion in September at 56.2%. The employment index was at 55.4%, and the new orders index was at 60.5%.

NOTE: The employment situation report for October that was originally scheduled for release on November 1st has been delayed until the following Friday, November 8th.

Fannie Mae: Mortgage Serious Delinquency rate declined in September, Lowest since December 2008

by Bill McBride on 10/31/2013 05:32:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in September to 2.55% from 2.61% in August. The serious delinquency rate is down from 3.41% in September 2012, and this is the lowest level since December 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 2.58% from 2.64% in August. Freddie's rate is down from 3.37% in September 2012, and this is at the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.86 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in about 2 years. Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in late 2015 or 2016.

Zillow: Case-Shiller House Price Index expected to show 13.2% year-over-year increase in September

by Bill McBride on 10/31/2013 04:09:00 PM

The Case-Shiller house price indexes for August were released Tuesday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.   It looks like another very strong month ...

From Zillow: Sept. Case-Shiller Expected to Continue Showing Eye-Popping Annual Appreciation

The Case-Shiller data for August came out this morning, and based on this information and the September 2013 Zillow Home Value Index (ZHVI, released Oct. 17), we predict that next month’s Case-Shiller data (September 2013) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.2 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from August to September will be 0.8 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for September will not be released until Tuesday, Nov. 26.
...
The Zillow Home Value index showed the first signs of moderation in home value appreciation, with several of the largest metros showing month-over-month declines in September. Case-Shiller indices have also shown slowdowns in monthly appreciation but have not yet recorded monthly declines.
The following table shows the Zillow forecast for the September Case-Shiller index.

Zillow September Forecast for Case-Shiller Index
 Case Shiller Composite 10Case Shiller Composite 20
NSASANSASA
Case Shiller
(year ago)
Sept 2012158.94155.66146.23143.20
Case-Shiller
(last month)
Aug 2013178.75174.59164.53160.55
Zillow ForecastYoY13.2%13.2%13.2%13.2%
MoM0.6%0.8%0.6%0.8%
Zillow Forecasts1 179.9176.1165.5162.0
Current Post Bubble Low 146.45149.63134.07136.87
Date of Post Bubble Low Mar-12Jan-12Mar-12Jan-12
Above Post Bubble Low 22.8%17.7%23.5%18.3%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

Goldman's Hatzius: How Much Risk to Homebuilding?

by Bill McBride on 10/31/2013 12:59:00 PM

Goldman Sach chief economist Jan Hatzius wrote today (research note): How Much Risk to Homebuilding? A few excerpts:

The housing news has deteriorated recently across a broad set of indicators, and the FOMC accordingly downgraded its assessment of the housing market in Wednesday's post-meeting statement. How much should we worry about our forecast that residential investment will continue to grow 10-15% and directly contribute 1/2 percentage point to real GDP growth next year?

The risks to our housing forecast are on the downside in the near term, but there are three reasons why we still take a positive view beyond the next 1-2 quarters. First, there is a clearly identifiable reason for the recent weakness, namely the sharp increase in mortgage rates. Some of this increase has reversed recently, and barring another shock the impact should be mostly complete by early 2014.

Second, the fundamental supply-demand picture for housing still looks positive. If the population grows at the rates projected by the Census Bureau and the size of the average household trends sideways to slightly lower--in line with historical trends--we estimate that household formation should climb to 1-1.3 million and steady-state housing demand to 1.3-1.6 million. This implies significant upside for housing starts from the current 900,000 level once the remaining excess supply has been eliminated

Third, while home sales and starts have disappointed recently, house prices have continued to rise at double-digit rates, with few signs of deceleration. This suggests that the supply/demand balance in the housing market still looks favorable. That said, we continue to expect that home price appreciation will slow over the next year.
Clearly housing has slowed recently. This has shown up in housing starts and new home sales, and the slowdown is also evident in home builder reports. However I think this slowdown is temporary, and I expect the housing recovery to continue in 2014.

Total Housing Starts and Single Family Housing StartsClick on graph for larger image.

This graph shows single and total housing starts through August (the September and October reports will be both released on November 26th).

There has been a dip in housing starts recently, but I think starts are still closer to the bottom than the next cycle top.  I agree with Hatzius that starts will continue to increase over the next several years - and this will be a key driver for economic growth.

Chicago PMI increases sharply to 65.9

by Bill McBride on 10/31/2013 09:48:00 AM

From the Chicago ISM:

October 2013:

The October Chicago Business Barometer rose to 65.9 in October from 55.7 in September, led by double digit gains in New Orders, Production and Order Backlogs. October’s gain placed the Barometer at the highest level since March 2011 with companies seemingly unaffected by the government shutdown.

New Orders soared to their highest level in nine years, adding to two prior months of gains while Production expanded to its highest level since February 2011.

Order Backlogs leapt out of a contractionary phase to the highest since March 2011. In line with expansion in New Orders and Production, Employment rose to its highest since June 2013, but remained well below the level of New Orders and Production.

Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The government might have shut down but Chicago area companies powered ahead in October as orders and production surged.”

“While it is a little surprising to see such a large rise in activity, the consistent increase in the Barometer over the past four months suggests the recovery is gaining traction,” he added.
This was well above the consensus estimate of 55.0.

Weekly Initial Unemployment Claims decline to 340,000

by Bill McBride on 10/31/2013 08:34:00 AM

The DOL reports:

In the week ending October 26, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 10,000 from the previous week's unrevised figure of 350,000. The 4-week moving average was 356,250, an increase of 8,000 from the previous week's unrevised average of 348,250.
The previous week was unrevised at 350,000.

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 increased to 356,250 - the highest level since April.

Some of the recent increase was due to processing problems in California (now resolved) and some probably related to the government shutdown. The four-week average will probably decline next week.

Wednesday, October 30, 2013

Report: Budget Deficit Declines Sharply in Fiscal 2013

by Bill McBride on 10/30/2013 08:49:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 335 thousand from 350 thousand last week.

• At 9:45 AM, the Chicago Purchasing Managers Index for October. The consensus is for a decrease to 55.0, down from 55.7 in September.

The Treasury released the Fiscal 2013 Final Monthly Treasury Statement. As expected, the Government ran a $75 billion surplus in September (end of fiscal year), and the budget deficit in 2013 declined sharply to 4.1% of GDP from 6.8% of GDP in fiscal 2012.

US Federal Government Budget Surplus DeficitClick on graph for larger image.

This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next nine years based on estimates from the CBO.  NOTE: This includes updated GDP estimates from the BEA. 

The deficit should decline further over the next couple of years (I think the CBO is pessimistic on 2014).

After 2015, the deficit will start to increase again according to the CBO, but there is no urgent need to reduce the deficit over the next few years.

Bank Failure #23 in 2013: Bank of Jackson County, Graceville, Florida

by Bill McBride on 10/30/2013 06:15:00 PM

From the FDIC: First Federal Bank of Florida, Lake City, Florida, Assumes All of the Deposits of Bank of Jackson County, Graceville, Florida

As of June 30, 2013 Bank of Jackson County had approximately $25.5 million in total assets and $25.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.1 million. ... Bank of Jackson County is the 23rd FDIC-insured institution to fail in the nation this year, and the fourth in Florida.
Is it Friday?  No, just an unusual mid-week bank failure.

Cost of Living Adjustment: 1.5%, Contribution Base for 2014: $117,000

by Bill McBride on 10/30/2013 04:41:00 PM

With the release of the CPI report this morning, we now know the Cost of Living Adjustment (COLA), and the contribution base for 2014.

Currently CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is a discussion from Social Security on the current calculation (1.5% increase) and a list of previous Cost-of-Living Adjustments. Note: this is not the headline CPI-U.

The contribution and benefit base will be $117,000 in 2014.

SPECIAL NOTE on CPI-chained: There has been some discussion of switching from CPI-W to CPI-chained for COLA. This will not happen this year, but could happen in the next year or two, and the switch would impact future Cost-of-living adjustments, see: Cost of Living and CPI-Chained.

If CPI-chained was used instead of CPI-W, the increase would be 1.45% (probably rounded up to 1.5%).  CPI-chained would have minimal impact on any one year, but would reduce benefits over time.

FOMC Statement: No Taper

by Bill McBride on 10/30/2013 02:00:00 PM

About as expected ...

FOMC Statement:

Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
emphasis added

Key Measures Shows Low Inflation in September

by Bill McBride on 10/30/2013 11:19:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in September. The 16% trimmed-mean Consumer Price Index also increased 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.2% annualized rate) in September. The CPI less food and energy increased 0.1% (1.5% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed has the median CPI details for September here.

Inflation Measures Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.0%, the trimmed-mean CPI rose 1.7%, the CPI rose 1.2%, and the CPI less food and energy rose 1.7%. Core PCE is for August and increased just 1.2% year-over-year.

On a monthly basis, median CPI was at 2.1% annualized, trimmed-mean CPI was at 2.2% annualized, and core CPI increased 1.5% annualized.

These measures indicate inflation remains below the Fed's target.

ADP: Private Employment increased 130,000 in October

by Bill McBride on 10/30/2013 08:15:00 AM

From ADP:

Private sector employment increased by 130,000 jobs from September to October, according to the October ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. September’s job gain was revised down from 166,000 to 145,000.
...
Mark Zandi, chief economist of Moody’s Analytics, said, "The government shutdown and debt limit brinksmanship hurt the already softening job market in October. Average monthly growth has fallen below 150,000. Any further weakening would signal rising unemployment. The weaker job growth is evident across most industries and company sizes.”
This was a little below the consensus forecast for 138,000 private sector jobs added in the ADP report. 

Note: ADP hasn't been very useful in predicting the BLS report on a monthly basis. The BLS report for October will be delayed until next Friday, November 8th, due to the government shutdown.

MBA: Mortgage Applications increase 6% in Latest Weekly Survey

by Bill McBride on 10/30/2013 07:02:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 6.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 25, 2013. ...

The Refinance Index increased 9 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent, the lowest rate since June 2013, from 4.39 percent, with points decreasing to 0.26 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Purchase Index Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is up over the last seven weeks as rates have declined from the August levels.

However the index is still down 57% from the levels in early May.


Mortgage Refinance Index The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index has fallen since early May, and the 4-week average of the purchase index is now down about 4% from a year ago.

Tuesday, October 29, 2013

Wednesday: FOMC Statement, ADP Employment, CPI

by Bill McBride on 10/29/2013 08:11:00 PM

A little good news via MarketWatch: Retail gas prices hit lowest level of 2013: AAA

The average U.S. price for a gallon of regular unleaded gasoline stood at $3.28 on Monday, the lowest price of 2013, according to AAA. The motorist and leisure travel group also said it expects gas prices to fall even further, approaching the end of the year "as sufficient, flat demand, the shift to cheaper winter-blend gasoline and falling crude-oil prices likely mean cheaper prices at the pump."
Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the weekly mortgage purchase applications index.

• At 8:30 AM, the ADP Employment Report for October. This report is for private payrolls only (no government). The consensus is for 138,000 payroll jobs added in October, down from 166,000 in September.

• At 8:30 AM, the Consumer Price Index for September. The consensus is for a 0.2% increase in CPI in September and for core CPI to increase 0.2%.

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

Fed: Household Debt Service Ratio near lowest level in 30+ years

by Bill McBride on 10/29/2013 05:43:00 PM

The Federal Reserve released the Q2 2013 Household Debt Service and Financial Obligations Ratios today. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.
...
The homeowner mortgage FOR includes payments on mortgage debt, homeowners' insurance, and property taxes, while the homeowner consumer FOR includes payments on consumer debt and automobile leases
This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:
The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only a rough approximation of the current debt service ratio faced by households. Nonetheless, this rough approximation may be useful if, by using the same method and data series over time, it generates a time series that captures the important changes in household debt service payments.
Financial Obligations Click on graph for larger image.

The graph shows the DSR for both renters and homeowners (red), and the homeowner financial obligations ratio for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio decreased in Q2, and is just above the record low set in Q4 2012 thanks to very low interest rates. The homeowner's financial obligation ratio for consumer debt increased slightly in Q2, and is back to levels last seen in early 1995.

Also the homeowner's financial obligation ratio for mortgages (blue) is at a new record low.  This ratio increased rapidly during the housing bubble, and continued to increase until 2008. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined to an all time low.

FOMC Preview: Flying Blind

by Bill McBride on 10/29/2013 03:28:00 PM

The Federal Open Market Committee (FOMC) is meeting today 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).

A key question for the meeting this week is how the FOMC will address the lack of data (aka "flying blind").  The delayed data probably means the FOMC will be on hold until at least the December meeting.  However the shutdown will still be impacting data releases through the end of the year, so the FOMC might wait until 2014 to start the "taper".

As a reminder, here are the quarterly projections from the September meeting. Unfortunately the advance report for Q3 GDP has been delayed (now scheduled for November 7th), so the FOMC is flying blind on GDP.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP12013201420152016
Sept 2013 Meeting Projections2.0 to 2.32.9 to 3.13.0 to 3.52.5 to 3.3
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 7.2% in September, however the unemployment rate is expected to increase in October due to the shutdown (and then decline in November as people return to work).

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate22013201420152016
Sept 2013 Meeting Projections7.1 to 7.36.4 to 6.85.9 to 6.25.4 to 5.9
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 August (close to projected rate, but far below target), however the September report was delayed until next week (November 8th). 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation12013201420152016
Sept 2013 Meeting Projections1.1. to 1.21.3 to 1.81.6 to 2.01.7 to 2.0

For core inflation, core PCE inflation was up 1.2% year-over-year in August. 

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation12013201420152016
Sept 2013 Meeting Projections1.2 to 1.31.5 to 1.71.7 to 2.01.9 to 2.0

So a key for the FOMC statement is how the FOMC addresses the lack of data (and if they mention the shutdown and related economic slowdown).

Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities

by Bill McBride on 10/29/2013 11:56:00 AM

It appears house price increases have slowed recently based on agent reports and asking prices (a combination of a little more inventory and higher mortgage rates), but this slowdown in price increases is not showing up yet in the Case-Shiller index because of the reporting lag and because of the three month average (the August report was an average of June, July and August prices). I expect to see smaller year-over-year price increases going forward and some significant deceleration towards the end of the year or in early 2014.

I also think it is important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  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.  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Zillow's chief economist Stan Humphries said today: "Home value appreciation is better when it’s boring", and I agree. I'd sure like to see nominal price increases closer to the level of inflation. But that is just wishcasting (as opposed to forecasting).

Earlier: Case-Shiller: Case-Shiller: Comp 20 House Prices increased 12.8% year-over-year in August

Nominal House Prices

Nominal House PricesThe first graph shows the quarterly Case-Shiller National Index SA (through Q2 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through August) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q4 2003 levels (and also back up to Q4 2008), and the Case-Shiller Composite 20 Index (SA) is back to April 2004 levels, and the CoreLogic index (NSA) is back to October 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 Q4 2000 levels, the Composite 20 index is back to December 2001, and the CoreLogic index back to June 2002.

In real terms, house prices are back to early '00s levels.

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 2000 levels, the Composite 20 index is back to May 2002 levels, and the CoreLogic index is back to February 2003.

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 39% above January 2000. 

These are nominal prices, and as I noted above real prices (adjusted for inflation) are up about 38% since January 2000 - so the increase in Phoenix from January 2000 until now is about the change in inflation.

Two cities - Denver (up 43% since Jan 2000) and Dallas (up 28% since Jan 2000) - are at new highs (no other Case-Shiller Comp 20 city is very close).    Denver is up slightly more than inflation over that period, and Dallas slightly less.  Detroit prices are still below the January 2000 level.

Case-Shiller: Comp 20 House Prices increased 12.8% year-over-year in August

by Bill McBride on 10/29/2013 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for August ("August" is a 3 month average of June, July and August prices).

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 Further in August 2013 According to the S&P/Case-Shiller Home Price Indices

Data through August 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed that the 10-City and 20-City Composites increased 12.8% year-over-year. Compared to July 2013, the annual growth rates accelerated for both Composites and 14 cities.

On a monthly basis, the 10-City and 20-City Composites gained 1.3% in August. Las Vegas led the cities with an increase of 2.9%, its highest since August 2004. Detroit and Los Angeles followed with gains of 2.0%. ... In August 2013, the 10- and 20-City Composites posted annual increases of 12.8%.

“The 10-City and 20-City Composites posted a 12.8% annual growth rate,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Both Composites showed their highest annual increases since February 2006. All 20 cities reported positive year-over-year returns. Thirteen cities posted double-digit annual gains. Las Vegas and California continue to impress with year-over-year increases of over 20%. Denver and Phoenix posted 20 consecutive annual increases; Miami and Minneapolis 19. Despite showing 26 consecutive annual gains, Detroit remains the only city below its January 2000 index level.
...
“Denver and Dallas again set new highs. All the other cities remain below their peaks. Boston and Charlotte are the two MSAs closest to their peaks with only 8-9% left to go. Las Vegas is still down 47.1% from its peak level.”
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 23.1% from the peak, and up 0.9% in August (SA). The Composite 10 is up 16.7% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 22.3% from the peak, and up 0.9% (SA) in August. The Composite 20 is up 17.3% 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 12.2% compared to August 2012.

The Composite 20 SA is up 12.8% compared to August 2012. This was the fifteenth consecutive month with a year-over-year gain.

Prices increased (SA) in 20 of the 20 Case-Shiller cities in August seasonally adjusted.  Prices in Las Vegas are off 47.7% from the peak, and prices in Denver and Dallas are at new highs.

This was above the consensus forecast for a 12.4% YoY increase. I'll have more on prices later.

Retail Sales declined 0.1% in September

by Bill McBride on 10/29/2013 08:30:00 AM

On a monthly basis, retail sales declined 0.1% from August to September (seasonally adjusted), and sales were up 3.2% from September 2012. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $425.9 billion, a decrease of 0.1 percent from the previous month, but 3.2 percent above September 2012. ... The July to August 2013 percent change was unrevised from +0.2 percent.

Retail Sales Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 28.5% from the bottom, and now 12.6% above the pre-recession peak (not inflation adjusted)

Retail sales ex-autos increased 0.4%. 

Excluding gasoline, retail sales are up 25.6% from the bottom, and now 13.1% above the pre-recession peak (not inflation adjusted).

Year-over-year change in Retail SalesThe second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 4.1% on a YoY basis (3.2% for all retail sales).

This was slightly below the consensus forecast of no change for retail sales, however sales ex-autos were at forecast.

Monday, October 28, 2013

Tuesday: Retail Sales, Case-Shiller House Prices, PPI

by Bill McBride on 10/28/2013 09:14:00 PM

From economist Shuyan Wu at Goldman Sachs: "How Much Noise in the October Employment Report?" A couple of excerpts:

Around 800,000 federal employees were furloughed on October 1. The Department of Defense (DoD) brought back roughly 350,000 by October 8, leaving about 450,000 federal employees still out of work during the reference week (Oct 6-12). The recalled DoD workers would be classified as employed; the non-DoD workers would be classified as unemployed on layoff since they did not work during the reference week but were expecting a recall. Assuming the October household sample was representative as usual, an additional 450,000 unemployed persons could add as much as 0.3 percentage points to the unemployment rate.
...
It is difficult to estimate the aggregate impact on private payrolls ...
Any impact on the unemployment rate and hiring would be reversed in the November report. We will have to wait until the December report (early January) for a report without shutdown distortions.

Tuesday:
• At 8:30 AM ET, Retail sales for September. The consensus is for retail sales to be unchanged in September, and to increase 0.4% ex-autos.

• Also at 8:30 AM, the Producer Price Index for September. The consensus is for a 0.2% increase in producer prices (0.1% increase in core).

• At 9:00 AM, the S&P/Case-Shiller House Price Index for August. Although this is the August report, it is really a 3 month average of June, July and August. The consensus is for a 12.4% year-over-year increase in the Composite 20 index (NSA) for August.

• At 10:00 AM, Conference Board's consumer confidence index for October. The consensus is for the index to decrease to 75.0 from 79.7.

• Also at 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for August. The consensus is for a 0.3% increase in inventories.

Weekly Update: Housing Tracker Existing Home Inventory up 0.3% year-over-year on Oct 28th

by Bill McBride on 10/28/2013 06:19:00 PM

Here is another weekly update on housing inventory ... for the second consecutive week, housing inventory is up slightly year-over-year.

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 (the most recent data was for September).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.

Existing Home Sales Weekly data Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012 and 2013.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

Inventory in 2013 is increasing, and is now slightly above the same week in 2012 (red is 2013, blue is 2012).

We can be pretty confident that inventory bottomed early this year, and I expect the seasonal decline to be less than usual at the end of the year - so the year-over-year change will continue to increase. 

Inventory is still very low, but this increase in inventory should slow house price increases.

Freddie Mac: Mortgage Serious Delinquency rate declined in September, Lowest since April 2009

by Bill McBride on 10/28/2013 03:15:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 2.58% from 2.64% in August. Freddie's rate is down from 3.37% in September 2012, and this is the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

I'm frequently asked when the distressed sales will be back to normal levels, and that will happen when the percent of seriously delinquent loans (and in foreclosure) is closer to normal.  Since very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications.

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for September later this week.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although this indicates some progress, the "normal" serious delinquency rate is under 1%. 

At the recent rate of improvement, the serious delinquency rate will not be under 1% until late 2015 or 2016.  Therefore I expect an above normal level of distressed sales for 2 or 3 more years (mostly in judicial states).

Q2 2013: Mortgage Equity Withdrawal Strongly Negative

by Bill McBride on 10/28/2013 01:31:00 PM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation.

For Q2 2013, the Net Equity Extraction was minus $75 billion, or a negative 2.4% of Disposable Personal Income (DPI).

Mortgage Equity Withdrawal Click on graph for larger image in new window.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined further in Q2. Mortgage debt has declined by over $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again in the next year or two.

For reference:

Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

Dallas Fed: Texas Manufacturing Activity Strengthens in October

by Bill McBride on 10/28/2013 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Strengthens

Texas factory activity picked up further in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 11.5 to 13.3, suggesting output increased at a slightly faster pace than in September.

Other measures of current manufacturing activity also indicated a slightly stronger expansion in October. The new orders index came in at 6.2, slightly above its September level, and marked a sixth consecutive month of increased demand. ...

The general business activity index remained positive but fell to 3.6 after rising sharply to 12.8 in September. The company outlook index posted a fifth consecutive positive reading but moved down to 5.4.

Labor market indicators reflected continued employment growth and longer workweeks. The October employment index was 9.6, largely unchanged from its September level.
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 October), and five Fed surveys are averaged (blue, through October) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through September (right axis).

All of the regional surveys showed expansion in October, but at a somewhat slower pace overall than in September.  The ISM index for October will be released Friday, November 1st and the consensus is for a decrease to 55.0 from 56.2 in September.

Pending Home Sales Index declines 5.6% in September

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

From the NAR: Pending Home Sales Continue Slide in September

The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 5.6 percent to 101.6 in September from a downwardly revised 107.6 in August, and is 1.2 percent below September 2012 when it was 102.8. The index is at the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings.
...
[Lawrence Yun, NAR chief economist] notes this is the first time in 29 months that pending home sales weren’t above year-ago levels. “This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014. Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year.”

The PHSI in the Northeast dropped 9.6 percent to 76.7 in September, and is 6.4 percent below a year ago. In the Midwest the index fell 8.3 percent to 102.3 in September, but is 5.7 percent higher than September 2012. Pending home sales in the South slipped 0.4 percent to an index of 116.2 in September, but are 2.0 percent above a year ago. The index in the West dropped 9.0 percent in September to 97.3, and is 9.8 percent lower than September 2012.
emphasis added
Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in October and November.

Fed: Industrial Production increased 0.6% in September

by Bill McBride on 10/28/2013 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.6 percent in September following a gain of 0.4 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 2.3 percent. Manufacturing output edged up 0.1 percent in September following a gain of 0.5 percent in August, and increased at an annual rate of 1.2 percent for the third quarter. Production at mines moved up 0.2 percent in September and advanced at an annual rate of 12.9 percent for the third quarter. The output of utilities rose 4.4 percent in September following declines in each of the previous five months. The level of the index for total industrial production in September was equal to its 2007 average and was 3.2 percent above its year-earlier level. Capacity utilization for total industry moved up 0.4 percentage point to 78.3 percent, a rate 1.9 percentage points below its long-run (1972-2012) average
emphasis added
Capacity Utilization Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.0 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.3% is still 1.9 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

Industrial Production The second graph shows industrial production since 1967.

Industrial production increased 0.6% in September to 100.0. This is 19.4% above the recession low, but still 0.8% below the pre-recession peak.

The monthly change for both Industrial Production and Capacity Utilization were above expectations. The consensus was for a 0.4% increase in Industrial Production in September, and for Capacity Utilization to increase to 78.0%.

Sunday, October 27, 2013

Monday: Industrial Production, Pending Home Sales

by Bill McBride on 10/27/2013 09:33:00 PM

A quick note: I started the year looking for around 2% GDP growth in 2013, with growth limited by significant fiscal tightening, and I thought the key downside risk was Congress. That looks about right (Congress was unfortunately worse than I expected).

Now I'm starting to look ahead to 2014, and there a few positive signs. Congress is still a downside risk, but I expect some sort of "small ball" budget agreement in December that will minimize the sequester spending cuts in 2014. Also I doubt there will be another government shutdown or debt ceiling showdown since it is an election year (many Congressmen are hoping Americans will forget what just happened).

The economy probably slowed in October - thanks to the House of Representatives - but I expect the economic numbers will start to improve in November or December, and that economic growth will pickup in 2014.  I'll write more about this soon.

Monday:
• At 9:15 AM ET, the Fed is scheduled to release Industrial Production and Capacity Utilization for September. The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 78.0%.

• At 10:00 AM, the NAR will release Pending Home Sales Index for September. The consensus is for a no change in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for October will be released. This is the last of the regional Fed surveys. The consensus is a reading of 9.0, up from 12.8 in September (above zero is expansion).

Weekend:
Schedule for Week of October 27th

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 5 and DOW futures are up 45 (fair value).

Oil prices are down with WTI futures at $97.58 per barrel and Brent at $106.94 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.30 per gallon.  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.



Orange County Historical Gas Price Charts Provided by GasBuddy.com

DataQuick: Q3 California Foreclosure Starts Decline, Down 58.6% from Q3 2012

by Bill McBride on 10/27/2013 10:14:00 AM

From DataQuick: California Foreclosure Starts Second-Lowest Since Early 2006

The number of California homeowners entering the foreclosure process fell last quarter to the second-lowest level in seven and a half years. The drop-off is the result of a stronger job market, home price appreciation, and a variety of government foreclosure avoidance efforts, a real estate information service reported.

Lenders filed 20,314 Notices of Default (NoDs) during the July-through-September period. That was down 21.1 percent from 25,747 during the previous quarter, and down 58.6 percent from 49,026 in third-quarter 2012, according to San Diego-based DataQuick.

Last quarter's NoDs were the lowest since 18,568 were filed in the first quarter of this year, and the second-lowest since 18,856 were filed in first-quarter 2006.

"Cleanup of the foreclosure mess is ongoing, but it's difficult to imagine a huge new wave. We still get asked about the long-feared 'shadow inventory' of distressed properties that some people predicted would trigger another big surge in foreclosures. Such warnings, which go back years, often reflected a worst-case scenario and didn't account for the breadth and depth of the government's eventual intervention in the crisis. Lots of legal, regulatory and political hurdles popped up, slowing the foreclosure rate. Then the economy stabilized and home prices started rising," said John Walsh, DataQuick president.

"Still, it's certainly possible that we could see foreclosure activity edge higher again," he added. "It will depend on the economy and how lenders manage their remaining distressed properties, and their success with mortgage modifications."
DataQuick NODsClick on graph for larger image.

This graph shows the number of Notices of Default (NoD) filed in California each year.   For 2013 (red), the bar is an estimated annual rate (since the California "Homeowner Bill of Rights" slowed foreclosure activity early this year, the estimated rate is Q1+Q2 + 2 times Q3).

 It looks like this will be the lowest year for foreclosure starts since 2005, and also below the levels in 1997 through 1999 when prices were rising following the much smaller housing bubble / bust in California.

Some of the decline in foreclosure starts is related to the "Homeowner Bill of Rights" that slowed foreclosures, some to higher house prices and a better economy - but overall foreclosure starts are close to a normal level (foreclosure starts were over 50,000 in 2004 and 2005 when prices were rising quickly).

Note: Foreclosures are still higher than normal in states with a judicial foreclosure process.

Saturday, October 26, 2013

Unofficial Problem Bank list declines to 670 Institutions

by Bill McBride on 10/26/2013 03:30:00 PM

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

Here is the unofficial problem bank list for October 25, 2013.

Changes and comments from surferdude808:

The FDIC got back to issuing its enforcement action activity for the previous month on the last Friday of the current month. So we got their release today that led to several changes to the Unofficial Problem Bank List. For the week, there were eight removals and one addition that leave the list at 670 institutions with $234.0 billion of assets. A year ago, the list had 856 institutions with assets of $326.4 billion. For the month of October 2013, the list fell by 20 institutions after five additions and 25 removals, which were mostly action terminations. During the month, 24 actions were terminated, which is the second highest monthly count after 25 actions were terminated in April 2012.

Actions were terminated against Old Second National Bank, Aurora, IL ($1.9 billion Ticker: OSBC); Bank of Idaho, Idaho Falls, ID ($235 million); First Enterprise Bank, Oklahoma City, OK ($139 million); Foundations Bank, Pewaukee, WI ($118 million); Benchmark Bank, Gahanna, OH ($113 million); Meramec Valley Bank, Valley Park, MO ($97 million); State Bank of Georgia, Fayetteville, GA ($73 million); and Prairie Mountain Bank, Great Falls, MT ($71 million).

Added this week was The West Michigan Savings Bank, Bangor, MI ($39 million). In addition, the FDIC issued a Prompt Corrective Action order against First Community Bank of Crawford County, Van Buren, AR ($74 million), which has been operating under a Consent Order since July 2012.

The FDIC may be forced to finally issue a cross-guaranty claim against Capitol Bancorp, Ltd (Ticker: CBCRQ). Last week, we mentioned the deal struck to sell four units to Talmer Bancorp that is contigent upon the FDIC issuing cross-guaranty waivers. In a report from SNL Securities (Capitol Bancorp creditors balk at 'entirely inappropriate' FDIC concessions in 363 sale ), apparently the Creditor's Committee is balking at a proposed $4 million of sales proceeds being placed in escrow for the FDIC. The Committee believes this payment would be "extraordinary" as the FDIC has not filed a claim in the bankruptcy filing nor has it asserted a cross-guaranty liability on the part of Capitol Bancorp. Thus, for the sale to close, the FDIC may have to issue a cross-guaranty claim in order to receive any sales proceeds.

Schedule for Week of October 27th

by Bill McBride on 10/26/2013 08:56:00 AM

This will be a very busy week for economic data.  The key reports this week are September retail sales, September Industrial Production, August Case-Shiller house prices, October auto sales, and the ISM manufacturing index.

For prices, the September Producer Price and Consumer Price indexes will be released.

The ADP employment report will be released on Wednesday, however the BLS employment report for October has been delayed until the following week.

Also there will be an FOMC meeting on Tuesday and Wednesday, although no changes are expected.

----- Monday, October 28th -----

Industrial Production 9:15 AM ET: The Fed is scheduled to release Industrial Production and Capacity Utilization for September.

This graph shows industrial production since 1967.

The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 78.0%.

10:00 AM ET: Pending Home Sales Index for September. The consensus is for a no change in the index.

10:30 AM: Dallas Fed Manufacturing Survey for October. This is the last of the regional Fed surveys. The consensus is a reading of 9.0, up from 12.8 in September (above zero is expansion).

----- Tuesday, October 29th -----

Retail Sales8:30 AM: Retail sales for September.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 28.7% from the bottom, and now 12.8% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to be unchanged in September, and to increase 0.4% ex-autos.

8:30 AM: Producer Price Index for September. The consensus is for a 0.2% increase in producer prices (0.1% increase in core).

Case-Shiller House Prices Indices 9:00 AM: S&P/Case-Shiller House Price Index for August. Although this is the August report, it is really a 3 month average of June, July and August.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through July 2012 (the Composite 20 was started in January 2000).

The consensus is for a 12.4% year-over-year increase in the Composite 20 index (NSA) for August. The Zillow forecast is for the Composite 20 to increase 12.4% year-over-year, and for prices to increase 0.6% month-to-month seasonally adjusted.

10:00 AM: Conference Board's consumer confidence index for October. The consensus is for the index to decrease to 75.0 from 79.7.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for August.  The consensus is for a 0.3% increase in inventories.

----- Wednesday, October 30th -----

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 October. This report is for private payrolls only (no government). The consensus is for 138,000 payroll jobs added in October, down from 166,000 in September.  

8:30 AM: Consumer Price Index for September. The consensus is for a 0.2% increase in CPI in September and for core CPI to increase 0.2%.

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

----- Thursday, October 31st -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 335 thousand from 350 thousand last week.

9:45 AM: Chicago Purchasing Managers Index for October. The consensus is for an increase to 55.0, up from 55.7 in September.

----- Friday, November 1st -----

Vehicle SalesAll day: Light vehicle sales for October. The consensus is for light vehicle sales to increase to 15.4 million SAAR in October (Seasonally Adjusted Annual Rate) from 15.2 million SAAR in September.

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

9:00 AM: The Markit US PMI Manufacturing Index for October. 

ISM PMI10:00 AM ET: ISM Manufacturing Index for October. The consensus is for a decrease to 55.0 from 56.2 in September.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion in September at 56.2%. The employment index was at 55.4%, and the new orders index was at 60.5%.

Friday, October 25, 2013

Survey: "Small business owners appear poised to flip the switch to growth mode"

by Bill McBride on 10/25/2013 08:27:00 PM

From the Press Enterprise (California's Inland Empire): ECONOMY: Small businesses feeling some love

Several business owners in Inland Southern California seem more upbeat, and American Express, which has done this survey twice annually since 2002, said the results indicate steady progress. ...

"Small business owners appear poised to flip the switch to growth mode,” Susan Sobbott, president of American Express Open, said in a statement.
...
“I think we do see some optimism,” [Michael Vanderpool, president and COO of Security Bank of California, a Riverside-based small business lender] said. “Everyone wants it to be all over by tomorrow, but we know it won’t happen that way. It’s a slow slosh.”
This would be a welcome change! Happy Friday to all (it looks like another week with no banks closed by the FDIC).

DOT: Vehicle Miles Driven increased 1.3% in August

by Bill McBride on 10/25/2013 04:06:00 PM

The Department of Transportation (DOT) reported:

◦ Travel on all roads and streets changed by 1.3% (3.4 billion vehicle miles) for August 2013 as compared with August 2012.

◦ Travel for the month is estimated to be 267.0 billion vehicle miles.

◦ Cumulative Travel for 2013 changed by 0.3% (6.1 billion vehicle miles).
The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways.


Vehicle Miles Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 69 months - almost 6 years - and still counting.

The second graph shows the year-over-year change from the same month in the previous year.

Vehicle Miles Driven YoYGasoline prices were down in August compared to August 2012. In August 2013, gasoline averaged of $3.65 per gallon according to the EIA. In 2012, prices in August averaged $3.78 per gallon.

Gasoline prices were down year-over-year in September, so I expect miles driven to be up in September too.  

As we've discussed, gasoline prices are just part of the story.  The lack of growth in miles driven over the last 5+ years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take several more years before we see a new peak in miles driven. 

ATA Trucking Index Up Sharply in September, Up 8.4% Year-over-year

by Bill McBride on 10/25/2013 12:45:00 PM

Here is a minor indicator that I follow, from ATA: ATA Truck Tonnage Index Jumped 1.4% in September

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.4% in September, which matched the August gain. (August’s increase was unchanged from what ATA reported on September 24, 2013.) In September, the SA index equaled 128.7 (2000=100) versus 126.9 in August. Compared with September 2012, the SA index surged 8.4%, which is the largest year-over-year gain since December 2011. Year-to-date, compared with the same period in 2012, the tonnage index is up 5.4%.
...
“I continue to be pleasantly surprised on the strength of truck tonnage,” ATA Chief Economist Bob Costello said. “I attribute a part of tonnage’s robustness to the sectors of the economy that are growing fastest, like housing construction, auto production, and energy output. These industries produce heavier than average freight, which leads to faster growth in tonnage versus a load or shipment measure.

While tonnage is likely running ahead of overall economic growth, perhaps the economy is stronger than many believe. The index has now increased in four of the last five months and the year-over-year growth rate has accelerated. Plus, other measures of truck freight volumes, while increasing at a slower pace than tonnage, have also accelerated in recent months,” he said. “However, the government shutdown served as a headwind in the fourth quarter.”
emphasis added
ATA Trucking Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index.

The index is at a new high and  up solidly year-over-year.   This is another minor indicator that suggests the economy is picking up (however this was prior to the government shutdown).

Vehicle Sales Forecasts: Stronger Sales in October Despite Government Shutdown

by Bill McBride on 10/25/2013 11:19:00 AM

Note: The automakers will report October vehicle sales Friday, Nov 1st. The consensus is for the sales rate to increase to a 15.5 million seasonally adjusted annual rate (SAAR) in October from 15.2 million in September.

Here are a few forecasts:

From Kelley Blue Book: October New-Car Sales Expected To Jump 12 Percent, According To Kelley Blue Book

In October, new light-vehicle sales, including fleet, are expected to hit 1,220,000 units, up 11.7 percent from October 2012 and up 7.4 percent from September 2013.

The seasonally adjusted annual rate (SAAR) for October 2013 is estimated to be 15.4 million, up from 14.3 million in October 2012 and up from 15.2 million in September 2013.
From JD Power: Government Shutdown Curbs New-Vehicle Sales on East Coast
New car- and light-truck sales in the Atlantic Coastal region, which had the highest concentration of employees affected by the October 1-16 shutdown, declined the most among geographic regions analyzed, compared with the same period last year. However, demand for new vehicles bounced back when the shutdown ended, according to the J.D. Power update, which is based on new-vehicle sales transaction data collected during the first 17 selling days of the month.

October sales are projected to reach nearly 1.22 million units, up from 1.09 million unit sales in the same month of 2012. That's equal to a 15.4 million-unit seasonally adjusted annual selling rate, or SAAR, which is much stronger than last October's 14.2 million-unit pace. It's also slightly ahead of the selling pace in September 2013.
From Edmunds.com: October Auto Sales Keep Pace Despite Threat from Government Shutdown, Says Edmunds.com
Edmunds.com ... forecasts that 1,229,860 new cars and trucks will be sold in the U.S. in October for an estimated Seasonally Adjusted Annual Rate (SAAR) of 15.5 million. The projected sales will be an 8.2 percent increase from September 2013, and a 12.7 percent increase from October 2012.

"It looks like the government shutdown ended just in the nick of time," says Edmunds.com Senior Analyst Jessica Caldwell. "The week-by-week data suggests that consumers started to get jittery by the middle of the month. But with the government back to work, most lost sales should be made up in the latter half of the month, and the industry's momentum will continue the pace it enjoyed before the disruption in Washington."
It looks the government shutdown impacted sales early in the month - especially on the east coast - but sales recovered towards the end of the month.

Final October Consumer Sentiment declines to 73.2

by Bill McBride on 10/25/2013 09:55:00 AM

Consumer Sentiment
Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for October was at 73.2, down from the September reading of 77.5, and down from the preliminary October reading of 75.2.

This was below the consensus forecast of 74.8. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011. 

Unfortunately Congress shut down the government, and once again threatened to "not pay the bills", and this impacted sentiment (and possibly consumer spending) in October.  The spike down wasn't as large this time, probably because many people realized the House was bluffing with a losing hand.

Thursday, October 24, 2013

Friday: Durable Goods, Consumer Sentiment

by Bill McBride on 10/24/2013 09:21:00 PM

It is time to play "small ball"!

From the WSJ: Both Parties Seek Small Budget Deal

Republicans and Democrats will use budget talks that start next week to try to minimize or reorder broad spending cuts that began in March, with both sides Thursday playing down the possibility of a "grand bargain" that would address the nation's long-term fiscal problems.

In de-emphasizing the likelihood of a larger deal, both parties appeared to be looking for limited areas of agreement in order to bypass the next round of the automatic spending cuts known as the sequester and buy time to deal with tax reform, entitlement cuts and other big-ticket items next year.
I think "small ball" is the correct approach at this time. Hopefully the "grand bargain" talk will subside - it is Not Gonna Happen during the next few months. Besides no one wants another shutdown since that was expensive and just plain dumb.

Friday:
• At 8:30 AM ET, the Durable Goods Orders for September from the Census Bureau. The consensus is for a 2.5% increase in durable goods orders.

• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (final for October). The consensus is for a reading of 74.8, down from the preliminary reading of 75.2, and down from the September reading of 77.5.

FHFA: No Change in Conforming Loan Limits for at least Six Months

by Bill McBride on 10/24/2013 05:21:00 PM

From Nick Timiraos at the WSJ: DeMarco: No Mortgage Limit Declines Before Spring 2014 (ht Soylent Green is People)

Federal officials will delay any reduction in the maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac until next spring at the earliest amid heavy resistance from the real-estate industry and many lawmakers in Congress.

Currently, Fannie and Freddie can guarantee mortgages that have balances as high as $417,000 in most of the country and up to $625,500 in expensive housing markets, including parts of California and New York. Loans within the limits, called “conforming” loans ...

Potential loan-limit changes will be announced six months ahead of their implementation date, [DeMarco] said, and such changes wouldn’t be announced until November at the earliest. “Anything we do would have a long lead time and would be gradual and measured,” said Mr. DeMarco.

When the agency does move ahead with loan limit declines, the declines will apply to both the national limit and the high-cost limits, which were enacted on an emergency and temporary basis by Congress in 2008
It will be politically difficult to lower these limits, and the limits probably wouldn't be adjusted down very much.  The conforming loan limit was $252,700 in 2000. Using the FHFA Purchase Only index, the national conforming loan limit might be lowered to $360,000 or so.

Using the CoreLogic or Case-Shiller Comp 20 indexes, the conforming loan limit might be lowered to $380,000 to $395,000. Not a large downward adjustment for the national limit.

Lawler on Homebuilders: Rising mortgage rates, Higher home prices, Resulted in a material slowdown in net home orders last quarter

by Bill McBride on 10/24/2013 01:59:00 PM

Some comments from housing economist Tom Lawler:

• PulteGroup, the nation’s second largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 3,781, down 16.8% from the comparable quarter of 2012. The company’s community count at the end of last quarter was down 15% from a year ago. Home closings totaled 4,817 last quarter, up 9.0% from the comparable quarter of 2012, at an average sales price of $310,000, up 11.1% from a year ago. The company’s order backlog as of September 30, 2013 was 7,522, down 2.1% from last September.

In its press release, the company noted that “consumers have recently slowed home purchases due to higher home prices, a rapid rise in mortgage rates, and political and economic uncertainty,” though the company said it expects the slowdown will be “short lived.”

On the home price front, the company said that “(t)he higher average selling price realized in the quarter reflects price increases implemented by the Company and a continued shift in the mix of homes closed toward more move-up and active adult homes which typically carry higher selling prices.”

• M/I Homes, the nation’s 16th largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 869, up 14.8% from the comparable quarter of 2012. The company’s average community county last quarter was up 14.3% from a year ago. Home deliveries totaled 937 last quarter, up 25.6% from the comparable quarter of 2012, at an average sales price of $284,000, up 6.8% from a year ago. The company’s order backlog as of September 30, 2013 was 1,607, up 36.3% from last September.

At the end of September the company owned or controlled 18,133 lots, up 61.9% from last September.

• NVR: Net Home Orders Fell Last Quarter; WAY Below “Consensus”. NVR, Inc, the nation’s fourth largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 2,381, down 6.9% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 19%, up from 17% a year ago. Home settlements totaled 3,342 last quarter, up 25,8% from the comparable quarter of 2012, at an average sales price of $349,200, up 8.5% from a year ago. The company’s order backlog at the end of September was 5,656, up 14.3% from last September. The decline in net orders last quarter occurred despite a YOY increase in the company’s average community count of 10.0%. NVR is heavily concentrated in the Mid-Atlantic region, where net orders last quarter were down 9.7% from a year ago.

• Meritage Homes reported that net home orders in the quarter ended September 30, 2013 totaled 1,300, up 8.0% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 14% last quarter, up from 13% a year ago. Home deliveries last quarter totaled 1,418, up 18.5% from the comparable quarter of 2012, at an average sales price of $341,000, up 21.8% from a year ago. The company’s order backlog on September 30, 2013 was 2,190, up 35.4% from last September. The company noted that average orders per community were down 4% from a year ago. In its press release, a company official attributed last quarter’s slowdown in net home orders to the earlier jump in mortgage rates and to the company’s aggressive increase in home prices.

The company noted that net home orders in the “West Region” (Arizona, California, and Colorado) were down 16% YOY, and net orders per community were down 19%, in part reflecting the company’s aggressive hiking of home prices in the West.

The company’s revenues, gross margins, and overall income exceeded “consensus,” but net orders were well below consensus.

As with many other large builders, Meritage began to add aggressively to the number of lots it owns or controls over the last year, and as of the end of September it owned or controlled 25,046 lots, up about 41% from last September.

Here is a summary of selected results reported by publicly-traded builders for last quarter and compared to the same quarter of 2012.

 Net OrdersSettlementsAverage Closing Price
Qtr. Ended:9/30/139/30/12% Chg9/30/139/30/12% Chg9/30/139/30/12% Chg
Pulte Group3,7814,544-16.8%4,8174,4189.0%$310,000$279,00011.1%
NVR2,3812,558-6.9%3,3422,65625.8%$349,200$321,7008.5%
Meritage Homes1,3001,2048.0%1,4181,19718.5%$341,000$280,00021.8%
M/I Homes86975714.8%93774625.6%$284,000$266,0006.8%
Total8,3319,063-8.1%10,5149,01716.6%$324,324$290,63511.6%

There appears to be little doubt that rising mortgage rates, combined with higher home prices, resulted in a material slowdown in net home orders last quarter. Mortgage rates, of course, have fallen considerably since early September, though they remain well above levels since during the first five months of the year.