Thursday, July 31, 2014

Friday: Jobs, Autos, ISM Manufacturing and More

by Bill McBride on 7/31/2014 09:06:00 PM

From Goldman Sachs economist Sven Jari Stehn: July Payroll Preview

We expect a 235,000 increase in nonfarm payrolls and a one tenth drop in the unemployment rate to 6.0%. As far as payrolls are concerned, our forecast would be a solid gain but at a pace slightly below that seen over the past few months. While a number of labor market indicators improved slightly in July (including jobless claims, the business survey employment components and household job market perceptions), other considerations point to a deceleration in the pace of employment creation (including a slowdown in ADP employment growth, softer online job advertising, higher layoffs and the composition of the June payroll gain).
Friday:
• At 8:30 AM ET, the Employment Report for July. The consensus is for an increase of 228,000 non-farm payroll jobs added in July, down from the 288,000 non-farm payroll jobs added in June. The consensus is for the unemployment rate to be unchanged at 6.1% in July.

• At 8:30 AM, Personal Income and Outlays for June including revised estimates 2011 through May 2014. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 81.5, up from the preliminary reading of 81.3, and down from the June reading of 82.5.

• All day, Light vehicle sales for July. The consensus is for light vehicle sales to decrease to 16.7 million SAAR in July from 16.9 million in June (Seasonally Adjusted Annual Rate).

• At 10:00 AM, Construction Spending for June. The consensus is for a 0.5% increase in construction spending.

• At 10:00 AM, ISM Manufacturing Index for July. The consensus is for an increase to 55.9 from 55.3 in June. The ISM manufacturing index indicated expansion in June at 55.3%. The employment index was at 52.8%, and the new orders index was at 58.9%.

Fannie Mae: Mortgage Serious Delinquency rate declined in June, Lowest since October 2008

by Bill McBride on 7/31/2014 03:59:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in June to 2.05% from 2.08% in May. The serious delinquency rate is down from 2.77% in June 2013, and this is the lowest level since October 2008.

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

Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in June to 2.07% from 2.10% in May. Freddie's rate is down from 2.79% in June 2013, and is at the lowest level since January 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 0.72 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2015 or early 2016.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in 2016.

Preview: Employment Report for July

by Bill McBride on 7/31/2014 02:31:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for July. The consensus, according to Bloomberg, is for an increase of 233,000 non-farm payroll jobs in July (range of estimates between 200,000 and 280,000), and for the unemployment rate to be unchanged at 6.1%.

Note: The BLS reported 288,000 payroll jobs added in June with the unemployment rate at 6.1%.

Here is a summary of recent data:

• The ADP employment report showed an increase of 218,000 private sector payroll jobs in July. This was below expectations of 235,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth slightly below expectations.

• The ISM manufacturing and non-manufacturing employment indexes for July will be released after the employment report this month. The ADP report indicated a 3,000 increase for manufacturing jobs in July.

Although the ISM reports are not available, the regional manufacturing surveys were all positive on employment for July (even the disappointing Chicago PMI improved on employment).

Initial weekly unemployment claims averaged close to 302,000 in July, down from 316,000 in June. For the BLS reference week (includes the 12th of the month), initial claims were at 303,000; this was down from 314,000 during the reference week in June.

The lower reference week reading suggests some upside to the consensus forecast.

• The preliminary July Reuters / University of Michigan consumer sentiment index decreased to 81.3 from the June reading of 82.5. This is frequently coincident with changes in the labor market, but there are other factors too.

• On small business hiring: The small business index from Intuit showed a 15,000 increase in small business employment in July.  From Intuit:

U.S. small businesses added 15,000 jobs in July, bringing the number of new jobs added over the last six months to more than 90,000. While 610,000 jobs have been added since the small business recovery began in March 2010, small business employment remains 870,000 jobs below its peak in March 2007.
...
"This month's employment increase shows additional progress." said Susan Woodward, the economist who works with Intuit to create the indexes. "Things continue to get better, but slowly. The jobs added by small business over the most recent six months, including July, are more than double what we saw over the prior six months."
• A few comments from Merrill Lynch economists:
We look for nonfarm payrolls to increase 250,000 in July, a slight slowdown from the three-month average of 272,000. The unemployment rate will likely hold at 6.1% while average hourly earnings edge up a trend-like 0.2% mom. This will translate to a 2.2% yoy pace for wage growth. The wage data will be in focus – despite the continued notable drop in the unemployment rate, wage growth has remained lackluster. This suggests that there is indeed spare capacity in the labor market, which can be seen by the large number of discouraged and marginally attached workers. We should therefore continue to look at these broader measures of unemployment, which have improved but remain historically elevated.

The early indicators of the labor market look healthy: initial jobless claims continued to slide lower while the regional manufacturing surveys showed a pickup in hiring. Furthermore, the labor differential has been improving, falling to -17.1 in June — the best since the summer of 2008, when the recession was just getting underway. In particular, we look for private payrolls to be up 235,000 while government jobs expand by 15,000, driven by state and local hiring. Special focus will be construction and retail jobs — we think the risk is that construction hiring looks sluggish, in part due to seasonal adjustment issues. Retail job growth should improve, but may look soft relative to the recent trend.

Within the household survey, we look for some slowdown in household job growth after the strong 407,000 gain in June. However, we think job creation will still look strong in this more volatile survey. The labor force participation rate was little changed last month and we think the risk is that it inches up slightly; however, we have been surprised by the continued weak trend in participation. Hence, we wouldn’t be surprised if the unemployment rate fell by another tenth.
• Conclusion: The ADP report was lower in July than in June - and below forecasts - but still fairly solid.  Weekly unemployment claims were at the lowest level during the reference period in a number of years. However the Intuit small business index showed somewhat less hiring in July.

There is always some randomness to the employment report, but the I'll take the under on the consensus forecast of 233,000 nonfarm payrolls jobs added in July. 

Restaurant Performance Index declined in June

by Bill McBride on 7/31/2014 11:36:00 AM

From the National Restaurant Association: Restaurant Performance Index Declined in June Amid Softer Customer Traffic

Due in large part to softer customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) registered a moderate decline in June. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.3 in June, down from a level of 102.1 in May and the first decline in four months. Despite the drop, the RPI remained above 100 for the 16th consecutive month, which signifies expansion in the index of key industry indicators.
emphasis added
Restaurant Performance Index Click on graph for larger image.

The index decreased to 101.3 in June, down from 102.1 in May. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month - and even with the monthly decline this is a solid reading.

Chicago PMI declines to 52.6

by Bill McBride on 7/31/2014 09:52:00 AM

From the Chicago ISM: Chicago Business Barometer Down 10.0 points to 52.6 in July

The Chicago Business Barometer dropped 10.0 points to 52.6 in July, significantly down from May’s seven month high of 65.5, led by a collapse in Production and the ordering components, all of which have been strong since last fall.

A monthly fall of this magnitude has not been seen since October 2008 and left the Barometer at its lowest level since June 2013.

In spite of the sharp decline this month, feedback from purchasing managers was that they saw the downturn as a lull rather than the start of a new downward trend. This was especially so given the recent strong performance and the fact that Employment managed to increase further in July.
emphasis added
This was well below the consensus estimate of 63.0.

Weekly Initial Unemployment Claims at 302,000, 4-Week Average Lowest since April 2006

by Bill McBride on 7/31/2014 08:36:00 AM

The DOL reports:

In the week ending July 26, the advance figure for seasonally adjusted initial claims was 302,000, an increase of 23,000 from the previous week's revised level. The previous week's level was revised down by 5,000 from 284,000 to 279,000. The 4-week moving average was 297,250, a decrease of 3,500 from the previous week's revised average. This is the lowest level for this average since April 15, 2006 when it was 296,000. The previous week's average was revised down by 1,250 from 302,000 to 300,750.

There were no special factors impacting this week's initial claims.
The previous week was revised down to 279,000.

The following graph shows the 4-week moving average of weekly claims since January 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 297,250.

This was lower than the consensus forecast of 305,000.  The 4-week average is now at normal levels for an expansion.

Wednesday, July 30, 2014

Thursday: Unemployment Claims, Chicago PMI

by Bill McBride on 7/30/2014 07:47:00 PM

From Tim Duy on the FOMC Statement at Economist's View

At the conclusion of this week's FOMC meeting, policymakers released yet another statement that only a FedWatcher could love. It is definitely an exercise in reading between the lines. The Fed cut another $10 billion from the asset purchase program, as expected. The statement acknowledged that unemployment is no longer elevated and inflation has stabilized. But it is hard to see this as anything more that describing an evolution of activity that is fundamentally consistent with their existing outlook. Continue to expect the first rate hike around the middle of next year; my expectation leans toward the second quarter over the third.
...
Rather than something to worry over, I sense that the majority of the FOMC is feeling relief over the recent inflation data. It is often forgotten that the Fed WANTS inflation to move closer to 2%. The reality is finally starting to look like their forecast, which clears the way to begin normalizing policy next year. Given the current outlook, expect only gradual normalization. ...
Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 305 thousand from 284 thousand.

• At 9:45 AM, the Chicago Purchasing Managers Index for July. The consensus is for a increase to 63.0, up from 62.6 in June.

Q2 GDP: Investment Contributions

by Bill McBride on 7/30/2014 04:00:00 PM

Private investment rebounded in Q2.   Residential investment increased at a 7.5% annual rate in Q2, equipment investment increased at a 7.0% annual rate, and investment in non-residential structures increased at a 5.3% annual rate. 

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing 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) increased in Q2, but the three quarter average was negative (red).

Residential investment is so low - as a percent of the economy - that this small decline is not  a concern.  However, for the rate of economic growth to increase, RI will probably have to continue to make positive contributions.
  
Equipment and software added 0.4 percentage points to growth in Q2 and the three quarter average moved higher (green).

The contribution from nonresidential investment in structures was also positive in Q2.  Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in this recovery. 

I expect to see all areas of private investment increase over the next few quarters - and that is key for stronger GDP growth.

FOMC Statement: More Tapering

by Bill McBride on 7/30/2014 02:00:00 PM

Another $10 billion reduction in asset purchases. Two key statement changes: "a range of labor market indicators suggests that there remains significant underutilization of labor resources" and "Inflation has moved somewhat closer to the Committee's longer-run objective".

FOMC Statement:

Information received since the Federal Open Market Committee met in June indicates that growth in economic activity rebounded in the second quarter. Labor market conditions improved, with the unemployment rate declining further. However, a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has moved somewhat closer to the Committee's longer-run objective. 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 activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in August, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $10 billion per month rather than $15 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $15 billion per month rather than $20 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. The Committee's sizable and still-increasing holdings of longer-term securities 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. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation 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 remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

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. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo. Voting against was Charles I. Plosser who objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for "a considerable time after the asset purchase program ends," because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee's goals.
emphasis added

GDP: A Few Graphs

by Bill McBride on 7/30/2014 09:48:00 AM

A few graphs based on the GDP report (including revisions).

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

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

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

State and local government spending bounced back in Q2, and I expect state and local governments to continue to make a positive contribution to GDP in 2014.

RI (blue) added to GDP growth for a few years, before subtracting in Q4 2013 and Q1 2014.    RI bounced back in Q2, and since RI is still very low, I expect RI to make a positive contribution to GDP for some time.

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

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

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

non-Residential InvestmentThe third graph shows non-residential investment in structures, equipment and "intellectual property products".

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

Overall this was a solid report.  Private investment rebounded in Q2, and that is the key to more growth going forward.

BEA: Real GDP increased at 4.0% Annualized Rate in Q2

by Bill McBride on 7/30/2014 08:30:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2014 (Advance Estimate) Annual Revision: 1999 through First Quarter 2014

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 4.0 percent in the second quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent (revised).
...
The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The advance Q2 GDP report, with 4.0% annualized growth, was above expectations of a 2.9% increase. Also Q1 was revised up.

Personal consumption expenditures (PCE) increased at a 2.5% annualized rate - a decent pace.

Private investment rebounded with residential investment up 7.5% annualized, and equipment up 5.3%. Change in private inventories added 1.66 percentage points to growth after subtracting 1.16 in Q1.

Overall this was a solid report. I'll have more later on the report and revisions.

ADP: Private Employment increased 218,000 in July

by Bill McBride on 7/30/2014 08:15:00 AM

From ADP:

Private sector employment increased by 218,000 jobs from June to July according to the July 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.
...
Mark Zandi, chief economist of Moody’s Analytics, said, "The July employment gain was softer than June, but remains consistent with a steadily improving job market. At the current pace of job growth unemployment will quickly decline. Layoffs are still receding and hiring and job openings are picking up. If current trends continue, the economy will return to full employment by late 2016.”
This was below the consensus forecast for 235,000 private sector jobs added in the ADP report. 

The BLS report for July will be released on Friday.

MBA: Mortgage Purchase Applications Increase Slightly in Latest MBA Weekly Survey

by Bill McBride on 7/30/2014 07:01:00 AM

From the MBA: Purchase Applications Increase Slightly in Latest MBA Weekly Survey

Mortgage applications decreased 2.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 25, 2014. ...

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 0.2 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.33 percent, with points increasing to 0.24 from 0.23 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 75% from the levels in May 2013.

As expected, refinance activity is very low this year.


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

According to the MBA, the unadjusted purchase index is down about 12% from a year ago.

Tuesday, July 29, 2014

Wednesday: Q2 GDP, FOMC Statement, ADP Employment

by Bill McBride on 7/29/2014 11:59:00 PM

First, for a very interesting discussion on GDP and seasonality see: GDP: Seasons and revisions . Too bad the BEA doesn't release NSA data any more - but the graph is interesting.

And the Atlanta Fed released their final GDPNow for Q2:

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2014 was 2.7 percent on July 25, unchanged from its July 17 reading. The first GDPNow model forecast for GDP growth in the third quarter will be released August 1.
Wednesday:
• 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 July. This report is for private payrolls only (no government). The consensus is for 235,000 payroll jobs added in July, down from 280,000 in June.

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2014 (advance estimate); Includes historical revisions from the BEA. The consensus is that real GDP increased 2.9% annualized in Q2.

• At 2:00 PM, the FOMC Statement. No change in interest rates is expected (for a long time). However the FOMC is expected to reduce QE3 asset purchases by $10 billion per month at this meeting.

Zillow: Case-Shiller House Price Index expected to slow further year-over-year in June

by Bill McBride on 7/29/2014 09:00:00 PM

The Case-Shiller house price indexes for May were released this morning. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.  

From Zillow: Case-Shiller Forecast: Expecting Further Slowdowns Ahead

The Case-Shiller data for May 2014 came out this morning, and based on this information and the June 2014 Zillow Home Value Index (ZHVI, released July 20th), we predict that next month’s Case-Shiller data (June 2014) 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 by 8.1 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from May to June will be flat for the 20-City Composite Index and 0.1 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for June will not be released until Tuesday, August 26.
So the Case-Shiller index will probably show a lower year-over-year gain in June than in May (9.3% year-over-year).

Zillow June 2014 Forecast for Case-Shiller Index
  Case Shiller Composite 10Case Shiller Composite 20
NSASANSASA
Case Shiller
(year ago)
June
2013
173.17171.70159.46157.92
Case-Shiller
(last month)
May
2014
185.33185.79170.64171.04
Zillow ForecastYoY8.1%8.1%8.1%8.1%
MoM1.0%0.1%1.0%0.0%
Zillow Forecasts1  187.2185.8172.4171.0
Current Post Bubble Low  146.45149.87134.07137.13
Date of Post Bubble Low  Mar-12Feb-12Mar-12Jan-12
Above Post Bubble Low  27.8%24.0%28.6%24.6%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

A few comments on the Seasonal Pattern for House Prices

by Bill McBride on 7/29/2014 01:46:00 PM

There has always been a clear seasonal pattern for house prices, but the seasonal differences have been more pronounced since the housing bust.

Even in normal times house prices tend to be stronger in the spring and early summer than in the fall and winter. Recently there has been a larger than normal seasonal pattern mostly because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have had a larger negative impact on prices in the fall and winter.


Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).

House Prices month-to-month change NSA Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index since 2001 (both through May).   The seasonal pattern was smaller back in the early '00s, and increased since the bubble burst.

It appears we've already seen the strongest month this year (NSA) for both Case-Shiller NSA and CoreLogic.  This suggests both indexes will turn negative seasonally (NSA) earlier this year than the previous two years - perhaps in the August reports.

Case Shiller Seasonal FactorsThe second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust.

It appears the seasonal factor has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.

House Prices: Real Prices and Price-to-Rent Ratio decline in May

by Bill McBride on 7/29/2014 11:52:00 AM

I've been expecting a slowdown in year-over-year prices as "For Sale" inventory increases, and the slowdown is here!   The Case-Shiller Composite 20 index was up 9.3% year-over-year in May; the smallest year-over-year increase since January 2013.

This is still a very strong year-over-year change, but on a seasonally adjusted monthly basis, the Case-Shiller Composite 20 index was down 0.3% in May.  This was the first monthly decrease since prices bottomed in early 2012.  (Note: The seasonal factor is skewed by foreclosures).

On a real basis (inflation adjusted), prices actually declined for the second consecutive month.  The price-rent ratio also declined in May for the Case-Shiller Composite 20 index.

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 $280,000 today adjusted for inflation (40%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

Nominal House PricesThe first graph shows the quarterly Case-Shiller National Index SA (through Q1 2014), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through May) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to mid-2004 levels (and also back up to Q2 2008), and the Case-Shiller Composite 20 Index (SA) is back to October 2004 levels, and the CoreLogic index (NSA) is back to January 2005.

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 2001 levels, the Composite 20 index is back to July 2002, and the CoreLogic index back to January 2003.

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 Q1 2002 levels, the Composite 20 index is back to November 2002 levels, and the CoreLogic index is back to May 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels.  And real prices (and the price-to-rent ratio) have declined for two consecutive months using Case-Shiller Comp 20.

HVS: Q2 2014 Homeownership and Vacancy Rates

by Bill McBride on 7/29/2014 10:15:00 AM

The Census Bureau released the Housing Vacancies and Homeownership report for Q2 2014 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 household formation, 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 64.7% in Q2, from 64.8% in Q1.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

Homeowner Vacancy RateThe HVS homeowner vacancy decreased to 1.9% in Q2. 

It isn't really clear what this means. Are these homes becoming rentals?

Once again - this probably shows that the general trend is down, but I wouldn't rely on the absolute numbers.

Rental Vacancy RateThe rental vacancy rate decreased in Q2 to 7.5% from 8.3% in Q1.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and Reis reported that the rental vacancy rate is at the lowest level since 2001 - and might be close to a bottom.

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.

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

by Bill McBride on 7/29/2014 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for May ("May" is a 3 month average of March, April and May 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 Price Gains Continue to Moderate According to the S&P/Case-Shiller Home Price Indices

Data through May 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... show the Composite Indices increased at a slower pace. The 10-City Composite gained 9.4% year-over-year and the 20-City 9.3%, down significantly from the +10.9% and +10.8% returns reported last month. All cities with the exception of Charlotte and Tampa saw their annual rates decelerate.

In the month of May, the 10- and 20-City Composites posted gains of 1.1%. For the second consecutive month, all twenty cities posted increases. Charlotte posted its highest monthly increase of 1.4% in over a year. Tampa gained 1.8%, followed by San Francisco at +1.6% and Chicago at +1.5%. Phoenix and San Diego were the only cities to gain less than one percent with increases of 0.4% and 0.5%, respectively. ...

“Home prices rose at their slowest pace since February of last year,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The 10- and 20-City Composites posted just over 9%, well below expectations. Month-to-month, all cities are posting gains before seasonal adjustment; after seasonal adjustment 14 of 20 were lower."
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 18.1% from the peak, and down 0.3% in May (SA). The Composite 10 is up 24.0% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 17.2% from the peak, and down 0.3% (SA) in May. The Composite 20 is up 24.7% 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 9.3% compared to May 2013.

The Composite 20 SA is up 9.3% compared to May 2013.

Prices increased (SA) in 6 of the 20 Case-Shiller cities in May seasonally adjusted.  (Prices increased in 20 of the 20 cities NSA) Prices in Las Vegas are off 43.2% from the peak, and prices in Denver and Dallas are at new highs (SA).

This was lower than the consensus forecast for a 9.9% YoY increase and suggests a slowdown in price increases. I'll have more on house prices later.

Monday, July 28, 2014

Tuesday: Case-Shiller

by Bill McBride on 7/28/2014 07:45:00 PM

A glass half empty view from Mark Hanson: Lack of Defaults/Foreclosures/Short Sales; A Serious Housing & Spending Headwind

Most think of the effects of foreclosures & short sales (distressed) only in the first derivative…that they are bad for housing and prices. As such, bullish leaning headlines of plunging defaults, foreclosures and short sales over the past two years are everywhere, often.

Some journalists and bloggers actually follow and publish the data weekly presenting them as further irrefutable evidence that “this” is the real “recovery”. But, of course, when it comes to new-era housing what instinctively sounds like a positive, or negative, is more often than not the exact opposite. And what’s ironic is that the lagging default, foreclosure, and short sale data they publish in the bullish sense is actually leading indicating data of a bearish trend-reversal in housing happening right now, which will lead to the third stimulus “hangover” in the past seven years.

So, the next time you see the headline “Mortgage Defaults (or Foreclosures) at a 6-year Low!!!” you might want to say to yourself “humm, that’s a real problem for purchase demand, house prices, construction labor, materials, appliance sales” and so on.

Bottom line: When it comes to defaults, foreclosures and short sales and how they really fit into the macro housing and economic mosaic less is bad. Foreclosures and short sales “were” a significant housing and macro economic tailwind that drove transactions, prices, home improvement retail, labor, materials, and durable goods sales, which now — down 75% since 2012 — have turned into a stiff headwind.
I like Mark, but how do we get from the crisis phase of the housing bust to a more normal market without seeing fewer foreclosures and short sales? It isn't possible.  


Tuesday:
• At 9:00 AM ET, the S&P/Case-Shiller House Price Index for May. Although this is the May report, it is really a 3 month average of March, April and May. The consensus is for a 9.9% year-over-year increase in the Composite 20 index (NSA) for May.

• At 10:00 AM, the Conference Board's consumer confidence index for July. The consensus is for the index to increase to 85.5 from 85.2.

• Also at 10:00 AM, the Q2 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 with other measures (like the decennial Census and the ACS).

Weekly Update: Housing Tracker Existing Home Inventory up 15.6% YoY on July 28th

by Bill McBride on 7/28/2014 05:53:00 PM

Here is another weekly update on housing inventory ...

SPECIAL NOTE from Ben at Housing Tracker:

I'm seeing higher than expected inventories in Dallas, Orlando and Tampa that do not appear to be accurate representations of reality. Data for those cities may be more suspect than data for other locales. National home inventory will also be skewed higher as a result. As always, consider this realtime data a rough and dirty estimate and use at your own risk.
There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data released was for June and indicated inventory was up 6.5% year-over-year).  

Fortunately Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data, for 54 metro areas, 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, 2013 and 2014.

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

In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays.  

Inventory in 2014 (Red) is now 15.6% above the same week in 2013. (Note: There might be an issue with the Housing Tracker data over the last couple of weeks - Ben is checking - but inventory is still up significantly).

Inventory is also about 2.4% above the same week in 2012.  According to several of the house price indexes, house prices bottomed in early 2012, and low inventories were a key reason for the subsequent price increases.  Now that inventory is back above 2012 levels, I expect house price increases to slow (and possibly decline in some areas).

Note: One of the key questions for 2014 will be: How much will inventory increase?  My guess was inventory would be up 10% to 15% year-over-year at the end of 2014 based on the NAR report.  Right now it looks like inventory might increase more than I expected.

Freddie Mac: Mortgage Serious Delinquency rate declined in June, Lowest since January 2009

by Bill McBride on 7/28/2014 02:29:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in June to 2.07% from 2.10% in May. Freddie's rate is down from 2.79% in June 2013, and this is the lowest level since January 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". 

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for June on Thursday, July 31st.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

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

The serious delinquency rate has fallen 0.72 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2015 or early 2016.

Note: 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. 

So even though distressed sales are declining, I expect an above normal level of distressed sales for perhaps 2 more years (mostly in judicial foreclosure states).

Dallas Fed: Manufacturing "Activity Picks up Pace Again" in July

by Bill McBride on 7/28/2014 10:33:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks up Pace Again

Texas factory activity increased again in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 15.5 to 19.1, indicating output grew at a faster pace than in June.

Other measures of current manufacturing activity reflected significantly stronger growth in July. The new orders index doubled from 6.5 to 13. The capacity utilization index also posted a strong rise, moving to 18 from 9.2 in June. The shipments index rose 12 points to 22.8, reaching its highest level since January 2013. The July readings for these indexes were all more than twice their 10-year averages, suggesting notably robust manufacturing growth.

Perceptions of broader business conditions were more optimistic this month. The general business activity index edged up from 11.4 to 12.7, pushing to its highest level in 10 months. ...

Labor market indicators reflected continued employment growth and longer workweeks. The July employment index posted a second robust reading, although it edged down from 13.1 to 11.4. ... The hours worked index edged up from 4.7 to 6.3, indicating a slightly stronger rise in hours worked than last month.
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 July), and five Fed surveys are averaged (blue, through July) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through June (right axis).

All of the regional surveys showed stronger expansion in July, and it seems likely the ISM index will increase this month.  The ISM index for July will be released Friday, August 1st.

NAR: Pending Home Sales Index decreased 1.1% in June, down 7.3% year-over-year

by Bill McBride on 7/28/2014 10:00:00 AM

From the NAR: Pending Home Sales Slip in June

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.1 percent to 102.7 in June from 103.8 in May, and is 7.3 percent below June 2013 (110.8). Despite June’s decrease, the index is above 100 – considered an average level of contract activity – for the second consecutive month after failing to reach the mark since November 2013 (100.7).
...
The PHSI in the Northeast fell 2.9 percent to 83.8 in June, and is 3.2 percent below a year ago. In the Midwest the index rose 1.1 percent to 106.6, but remains 5.5 percent below June 2013.

Pending home sales in the South dipped 2.4 percent to an index of 113.8 in June, and is 4.3 percent below a year ago. The index in the West inched 0.2 percent in June to 95.7, but remains 16.7 percent below June 2013.
Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

Black Knight (formerly LPS): House Price Index up 0.9% in May, Up 5.9% year-over-year

by Bill McBride on 7/28/2014 09:27:00 AM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight (formerly LPS), Zillow, FHFA, FNC and more). The timing of different house prices indexes can be a little confusing. Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: U.S. Home Prices Up 0.9 Percent for the Month; Up 5.9 Percent Year-Over-Year

Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on May 2014 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
The year-over-year increases have been getting steadily smaller for the last 8 months - as shown in the table below:

MonthYoY House
Price Increase
Jan-136.7%
Feb-137.3%
Mar-137.6%
Apr-138.1%
May-137.9%
Jun-138.4%
Jul-138.7%
Aug-139.0%
Sep-139.0%
Oct-138.8%
Nov-138.5%
Dec-138.4%
Jan-148.0%
Feb-147.6%
Mar-147.0%
Apr-146.4%
May-145.9%


The LPS HPI is off 11.1% from the peak in June 2006.

Note: The press release has data for the 20 largest states, and 40 MSAs.

LPS shows prices off 42.6% from the peak in Las Vegas, off 35.7% in Orlando, and 31.7% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices are at new highs in Colorado and Texas (Denver, Austin, Dallas, Houston and San Antonio metros). Prices are also at new highs in San Jose, CA and in Nashville, TN.

Note: Case-Shiller for May will be released tomorrow.

Sunday, July 27, 2014

Monday: Pending Home Sales, Dallas Fed Mfg Survey

by Bill McBride on 7/27/2014 08:36:00 PM

A quick note on employment ... Party like it's 1999?

Here is a table of the annual change in total nonfarm and private sector payrolls jobs since 1999.  The last three years have been near the best since 1999 (2005 was the best year for total nonfarm, and 2011 the best for private jobs).

It is possible that 2014 will be the best year since 1999 for both total nonfarm and private sector employment.

Change in Payroll Jobs per Year (000s)
  Total, NonfarmPrivate
19993,1772,716
20001,9461,682
2001-1,735-2,286
2002-508-741
2003105147
20042,0331,886
20052,5062,320
20062,0851,876
20071,140852
2008-3,576-3,756
2009-5,087-5,013
20101,0581,277
20112,0832,400
20122,2362,294
20132,3312,365
201412,7702,662
1 2014 is current pace annualized (through June).

Monday:
• At 10:00 AM ET, the Pending Home Sales Index for June. The consensus is for a 0.3% increase in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for July. This is the last of the regional Fed manufacturing surveys for July.

• During the day, the 2014 Social Security Trustees Report

Weekend:
FOMC Preview: More Tapering

Schedule for Week of July 27th

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 4 and DOW futures are down 29 (fair value).

Oil prices were mixed over the last week with WTI futures at $101.75 per barrel and Brent at $108.20 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.52 per gallon (down more than a dime from a year ago).  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

FOMC Preview: More Tapering

by Bill McBride on 7/27/2014 09:57:00 AM

The Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday of this coming week, and it is almost certain that the FOMC will announce a reduction in monthly asset purchases by another $10 billion per month, from $35 billion to $25 billion. The FOMC statement will be released at 2:00 PM ET on Wednesday, and there will be no press conference after this meeting.

Right now it appears that the FOMC will also reduce QE3 another $10 billion at the September meeting (Sept 17th), and announce the end of QE3 in October (Oct 29th).

On the statement, the FOMC will probably only make small changes. From Goldman Sachs economist David Mericle:

We expect that next week’s FOMC statement will show very little change. The FOMC might choose to upgrade the language on growth in economic activity somewhat, and it might also strengthen the language on labor market indicators a touch in recognition of the strong June employment report. For the most part, however, recent data have supported the characterization of current conditions in the June statement. In particular, the softer June CPI print likely reinforced the Committee’s decision to downplay the firmer inflation prints seen from March to May, and weak housing starts and new home sales reports have likely reinforced concern about the housing sector.
For review, here are the June FOMC projections (Projections will be updated next at the September meeting).  

The advance estimate of Q2 GDP will be released Wednesday morning, and the consensus is that real GDP increased 2.9% annualized in Q2. Depending on revisions, this would suggest no growth in the first half of 2014 (although other indicators would suggest some growth) - and this would mean another downgrade for GDP at the September meeting.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1201420152016
June 2014 Meeting Projections2.1 to 2.33.0 to 3.22.5 to 3.0
Mar 2014 Meeting Projections2.8 to 3.03.0 to 3.22.5 to 3.0
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 6.1% in June, and it seems the unemployment rate projection will be lowered again in September.    It is possible the FOMC will also lower their long run unemployment projection too.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2201420152016
June 2014 Meeting Projections6.0 to 6.15.4 to 5.75.1 to 5.5
Mar 2014 Meeting Projections6.1 to 6.35.6 to 5.95.2 to 5.6
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of May, PCE inflation was up 1.8% from May 2013, and core inflation was up 1.5%.  The FOMC expects inflation to increase in 2014, but remain below their 2% target (Note: the FOMC target is supposedly symmetrical around 2%, although some analysts think the FOMC is acting as if 2.0% is a ceiling). 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1201420152016
June 2014 Meeting Projections1.5 to 1.71.5 to 2.01.6 to 2.0
Mar 2014 Meeting Projections1.5 to 1.61.5 to 2.01.7 to 2.0

Here are the FOMC's recent core inflation projections:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1201420152016
June 2014 Meeting Projections1.5 to 1.61.6 to 2.01.7 to 2.0
Mar 2014 Meeting Projections1.4 to 1.61.7 to 2.01.8 to 2.0

Overall tapering will probably continue at the same pace, and the FOMC will be a little more positive.  But I expect there will be no change on the timing for the end of QE3 (at the October meeting) or on the first rate hike (sometime in 2015).

Saturday, July 26, 2014

Schedule for Week of July 27th

by Bill McBride on 7/26/2014 01:17:00 PM

This will be a busy week for economic data with several key reports including the July employment report on Friday and the advance Q2 GDP report on Wednesday.

Other key reports include the ISM manufacturing index on Friday, July vehicle sales, also on Friday, and the May Case-Shiller house price index on Tuesday.

There will a two-day FOMC meeting on Tuesday and Wednesday, and the Fed is expected to announce on Wednesday a decrease in asset purchases from $35 billion per month to $25 billion per month.

----- Monday, July 28th -----

10:00 AM ET: Pending Home Sales Index for June. The consensus is for a 0.3% increase in the index.

10:30 AM: Dallas Fed Manufacturing Survey for July. This is the last of the regional Fed manufacturing surveys for July.

During the day: the 2014 Social Security Trustees Reports

----- Tuesday, July 29th -----

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

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through the April 2014 report (the Composite 20 was started in January 2000).

The consensus is for a 9.9% year-over-year increase in the Composite 20 index (NSA) for May. The Zillow forecast is for the Composite 20 to increase 9.6% year-over-year, and for prices to increase 0.4% month-to-month seasonally adjusted.

10:00 AM: Conference Board's consumer confidence index for July. The consensus is for the index to increase to 85.5 from 85.2.

10:00 AM: Q2 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 with other measures (like the decennial Census and the ACS).

----- Wednesday, July 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 July. This report is for private payrolls only (no government). The consensus is for 235,000 payroll jobs added in July, down from 280,000 in June.

8:30 AM: Gross Domestic Product, 2nd quarter 2014 (advance estimate); Includes historical revisions from the BEA. The consensus is that real GDP increased 2.9% annualized in Q2.

2:00 PM: FOMC Meeting Announcement.  No change in interest rates is expected (for a long time). However the FOMC is expected to reduce QE3 asset purchases by $10 billion per month at this meeting.

----- Thursday, July 31st -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 305 thousand from 284 thousand.

9:45 AM: Chicago Purchasing Managers Index for July. The consensus is for a increase to 63.0, up from 62.6 in June.

----- Friday, Aug 1st -----

8:30 AM: Employment Report for July. The consensus is for an increase of 228,000 non-farm payroll jobs added in July, down from the 288,000 non-farm payroll jobs added in June.

The consensus is for the unemployment rate to be unchanged at 6.1% in July. 

Payroll jobs added per monthThis graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes).

June was the fifth month in a row with more than 200 thousand jobs added, and employment in June was up 2.495 million year-over-year.

The economy has added 9.7 million private sector jobs since employment bottomed in February 2010 (9.1 million total jobs added including all the public sector layoffs).

There are 895 thousand more private sector jobs now than when the recession started in 2007, and total employment is now 415 thousand above the pre-recession peak.

8:30 AM: Personal Income and Outlays for June including revised estimates 2011 through May 2014. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 81.5, up from the preliminary reading of 81.3, and down from the June reading of 82.5.

Vehicle SalesAll day: Light vehicle sales for July. The consensus is for light vehicle sales to decrease to 16.7 million SAAR in July from 16.9 million in June (Seasonally Adjusted Annual Rate).

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

10:00 AM: Construction Spending for June. The consensus is for a 0.5% increase in construction spending.

ISM PMI10:00 AM: ISM Manufacturing Index for July. The consensus is for an increase to 55.9 from 55.3 in June.

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

The ISM manufacturing index indicated expansion in June at 55.3%. The employment index was at 52.8%, and the new orders index was at 58.9%.

Unofficial Problem Bank list declines to 452 Institutions

by Bill McBride on 7/26/2014 08:15:00 AM

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

Here is the unofficial problem bank list for July 25, 2014.

Changes and comments from surferdude808:

As anticipated, the FDIC provided an update on its enforcement action activity which contributed to many changes to the Unofficial Problem Bank list this week. In all, there were 11 removals this week pushing the list count down to 452 institutions with assets of $146.1 billion. A year ago the list held 729 institutions with assets of $260.9 billion. For the month, the list count fell by 16 after 10 action terminations, four mergers, and two failures. This is the smallest monthly count decline since a net drop of 12 during the month of June 2013. This may be the leading edge of a slowdown in action terminations.

The FDIC surprised us by closing GreenChoice Bank, FSB, Chicago, IL ($73 million) this Friday. This is the 14th failure this year approximating the pace last year when 16 banks had failed by this point. GreenChoice is the 60th Illinois-based institution to fail since the on-set of the Great Recession. The count in Illinois only trails the 88 in Georgia and 71 in Florida.

FDIC terminated actions against Alliance Bank Central Texas, Waco, TX ($187 million); Monarch Community Bank, Coldwater, MI ($182 million Ticker: MCBF); First Personal Bank, Orland Park, IL ($166 million); Rabun County Bank, Clayton, GA ($163 million); Flagship Bank Minnesota, Wayzata, MN ($94 million); One World Bank, Dallas, TX ($82 million); Bay Bank, Green Bay, WI ($81 million); and Kendall State Bank, Valley Falls, KS ($38 million).

Finding their way off the list through a merger partner were Atlas Bank, Brooklyn, NY ($116 million) and Bay Bank, Mobile, AL ($78 million).

Most likely there will be few changes to the list next week.
CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 452.

Friday, July 25, 2014

Bank Failure Friday: Greenchoice Bank, Chicago, Illinois,14th Failure of 2014

by Bill McBride on 7/25/2014 07:39:00 PM

From the FDIC: Providence Bank, LLC, South Holland, Illinois, Assumes All of the Deposits of Greenchoice Bank, fsb, Chicago, Illinois

As of March 31, 2014, GreenChoice Bank, fsb had approximately $72.9 million in total assets and $71.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $14.2 million. ... GreenChoice Bank, fsb is the 14th FDIC-insured institution to fail in the nation this year, and the fourth in Illinois.
There were 24 failures in 2013, and it appears there will be about the same this year. F

Vehicle Sales Forecasts: Over 16 Million SAAR again in July

by Bill McBride on 7/25/2014 01:59:00 PM

The automakers will report July vehicle sales next Friday, August 1st.  Sales in June were at 16.92 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in July will be above 16 million SAAR again.  The analyst consensus is for July sales of 16.8 million SAAR.

Note:  There were 26 selling days in July this year compared to 25 last year.  

Here are a few forecasts:

From J.D. Power: U.S. auto sales seen rising 9 percent in July: JD Power-LMC

U.S. auto sales in July will be the strongest for the month since 2006, and rise 9 percent from last year, automotive industry consultants J.D. Power and LMC Automotive predicted on Thursday.

For the fifth consecutive month, the seasonally adjusted annualized sales rate will top 16 million new vehicles, at 16.6 million, the consultancies said.

LMC raised its full-year 2014 forecast for new auto sales to 16.3 million, from 16.2 million.
From TrueCar: New Vehicle Sales Continue to Sizzle in July; TrueCar Increases 2014 Annual Sales Forecast to 16.35M
Seasonally Adjusted Annualized Rate ("SAAR") of 16.7 million new vehicle sales is up 6.8 percent from July 2013.
From Kelley Blue Book: New-Car Sales to Jump 11.6 Percent Year-Over-Year in July
The seasonally adjusted annual rate (SAAR) for July 2014 is estimated to be 16.6 million, up from 15.7 million in July 2013 and down from 16.9 million in June 2014.
Another solid month for auto sales.

Hotels: Record High Occupancy Rate for Week Ending July 19th

by Bill McBride on 7/25/2014 11:10:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 19 July

In year-over-year measurements, the industry’s occupancy rate rose 2.9 percent to 77.1 percent. Average daily rate increased 4.1 percent to finish the week at US$117.57. Revenue per available room for the week was up 7.1 percent to finish at US$90.68.
emphasis added
Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

This is the highest occupancy rate for any week since at least January 2000.  The previous high was 77.0% in late July 2000.

And from HotelNewNow.com: June US hotel occupancy best of this century
Just how good is the current state of demand? Take a bite of this juicy nugget: June occupancy of 71.7% is the highest of any June this century.

The above factoid was culled by Jan Freitag, senior VP of global development for STR and our resident hotel data aficionado. Jan’s also a master of context, explaining this milestone another way: The average occupancy for U.S. hotels is now higher than the previous peak recorded in June 2007 (71.1%).

To understand how we got here, you need look no further than economics 101. For much of the past few years, the relationship between supply and demand has been, well, just great.

As of June, demand growth (12-month moving average) was up 3.2%, according to STR data. Supply growth? Only 0.8%.

In other words, supply growth still has had no impact, as Freitag points out.
...
June ADR (12-month moving average) was $112, up 3.9%. The result is revenue per available room of $71, which represents growth of 6.4%.

Both those ADR and RevPAR numbers represent all-time highs for the U.S. hotel industry.
The following graph shows the seasonal pattern for the hotel occupancy rate for the last 15 years using the four week average.

Hotel Occupancy Rate Click on graph for larger image.

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

The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the same level as in 2000. 

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

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

Chemical Activity Barometer "retains strong year-over-year growth; shows short-term tightening"

by Bill McBride on 7/25/2014 09:38:00 AM

Here is a new indicator that I'm following that appears to be a leading indicator for industrial production.

From the American Chemistry Council: U.S. Economic Expansion Being Tempered By Uncertainty in Energy Markets, Shows Leading Economic Indicator

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC) posted a 0.4 percent increase over June, as measured on a three-month moving average (3MMA). The pace of growth was consistent with earlier growth logged in the second quarter. Year over year growth now stands at a 4.4 percent increase. ...

During July production-related indicators were up, as were product/selling prices, and inventories. After rebounding sharply in May, chemical equity prices have weakened in response to the growing unrest in the Middle East and Ukraine.

Unlike earlier readings, trends in construction-related chemistries suggest a lackluster market for this sector, which includes plastic resins as well as adhesives and sealants, construction chemicals, paint additives, and other performance chemistries. Pigments are faring better, as are plastic resins used in consumer product applications. Continued strength in electronic chemicals is encouraging, as the semiconductor industry’s early place in the supply chain makes it a bellwether of the industrial cycle. Gains in oilfield chemicals suggest that the boom in unconventional oil and gas will continue to progress, contributing to the overall growth of the U.S. economy.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

And this suggests continued growth.

Thursday, July 24, 2014

Lawler: Various Builder Results: Horton Home Orders, Market Share Jumps on Increased Sales Incentives; Orders “Lackluster” at Other Builders

by Bill McBride on 7/24/2014 09:25:00 PM

CR Note: The comments on D.R. Horton are very interesting (more incentives, no price increases).  Also see table at bottom for summary stats.

From housing economist Tom Lawler:

D.R. Horton reported that net home orders in the quarter ended June 30, 2014 totaled 8,551, up 25.3% from the comparable quarter of 2013. Sales per community were up almost 13% YOY. Horton’s acquisition of Crown Communities added 290 to last quarter’s orders. DHI’s average net order price last quarter was $281,336, up 5.0% from a year ago. Home deliveries last quarter totaled 7,676, up 18.8% from the comparable quarter of 2013, at an average sales price of $272,316, up 7.9% from a year ago. The acquisition of Crown Communities added 254 to last quarter’s deliveries. DHI’s order backlog at the end was 11,365, up 14.7% from last June, at an average order price of $286,194, up 9.8% from a year ago.

In the company’s conference call Horton’s CEO characterized the overall demand for new homes last quarter as “relatively stable” compared to a year ago, but that Horton’s previous aggressive acquisition of land/lots, combined with more aggressive use of sales incentives to move inventory, enabled the company to boost its market share to its highest level ever. Another official said that the company increased sales incentives in MANY of its communities in order to meet its aggressive sales goals. The official noted that sales incentives were much lower than normal in 2013 and early 2014, but that last quarter (and currently) sales incentives were “back to normal.” Another official noted that home price appreciation had slowed appreciably.
...
PulteGroup reported that net home orders in the quarter ended June 30, 2014 totaled 4,778, down 2.2% from the comparable quarter of 2013. Sales per active community were up about 6% YOY, reflected the 6% YOY drop in community count. Pulte’s average net order price last quarter was $333,698, up 7.1% from a year ago. Home deliveries last quarter totaled 3,798, down 8.5% from the comparable quarter of 2013, at an average sales price of $328,000, up 11.6% from a year ago. The company’s order backlog at the end of June was 8,179, down 4.4% from last June, at an average order price of $338,689, up 6.8% from a year ago.

Meritage Homes reported that net home orders in the quarter ended June 30, 2014 totaled 1,647, up 0.6% from the comparable quarter of 2013. Net orders per community were down about 8.2% YOY. Meritage’s average net order price last quarter was $375,000, up 7.1% from a year ago. Home deliveries last quarter totaled 1,368, up 3.6% from the comparable quarter of 2013, at an average sales price of $368,000, up 11.5% from a year ago. The company’s order backlog at the end of June was 2,548, up 11.6% from last June, at an average order price of $373,000, up 5.7% from a year ago. Meritage owned or controlled about 25,800 lots at the end of June, up 14.2% from last June and up 44.5% from two years ago.

M/I Homes reported that net home orders in the quarter ended June 30, 2014 totaled 1,016, down 5.8% from the comparable quarter of 2013. Sales per community were down 14.4% YOY. Home deliveries last quarter totaled 894, up 13.5% from the comparable quarter of 2013, at an average sales price of $306,000, up 8.9% from a year ago. The company’s order backlog at the end of June was 1,647, down 1.7% from last June, at an average order price of $332,000, up 13.3% from a year ago. In its press release the company attributed the disappointed pace of new orders “primarily to delays in opening new communities and (to) lower traffic levels. Orders were especially weak in the Mid-Atlantic region, where orders were down 15.6% YOY. M/I owned or controlled 20,991 lots at the end of June, 22.3% from last June and up 98.1% from two years ago.

Here are some summary stats from large publicly-traded builders who have reported results for last quarter.

  Net OrdersSettlementsAverage Closing Price
Qtr. Ended:06/1406/13% Chg06/1406/13% Chg06/1406/13% Chg
D.R. Horton8,5516,82225.3%7,6766,46418.8%$272,316$252,2907.9%
PulteGroup4,7784,885-2.2%3,7984,152-8.5%$328,000$294,00011.6%
NVR3,4153,2784.2%2,9432,8782.3%$368,200$344,7006.8%
Meritage Homes1,6471,6370.6%1,3681,3213.6%$368,000$330,00011.5%
M/I Homes1,0161,078-5.8%89478813.5%$306,000$281,0008.9%
Total19,40717,7009.6%16,67915,6036.9%$311,568$288,4638.0%

NMHC Survey: Apartment Market Conditions Tighter in Q2 2014

by Bill McBride on 7/24/2014 03:45:00 PM

From the National Multi Housing Council (NMHC): Apartment Markets Continue Expansion in July NMHC Quarterly Survey

Apartment markets continued to expand in the second quarter of 2014, as growth accelerated in all four indexes in the National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The market tightness (68), sales volume (56), equity financing (58) and debt financing (68) indexes all improved from the first quarter this year and marked the second quarter in a row with all above the breakeven level of 50.

“Despite concerns in some quarters about the pace of new development, most markets appear to be absorbing new supply with no downward pressure on rents or vacancies,” said NMHC Senior Vice President of Research and Chief Economist Mark Obrinsky. “The improvement in market tightness was particularly noteworthy. Four years into the apartment industry recovery and expansion, the increase in demand continues to outstrip the pickup in new supply.”

The survey also asked about urban vs. suburban development. Four in ten (43 percent) reported an increased share of urban development relative to suburban in the last six months, compared to one quarter (27 percent) reporting an increased share of suburban development. Of the suburban development taking place, more than half (54 percent) reported more town center-style developments, with 39 percent reporting no appreciable change and 7 percent reporting more garden-style developments. [These results exclude “Don’t know/not applicable.”]

“Early in the recovery, apartment development was concentrated in downtown areas of large cities. While such areas continue to attract investment, new construction is expanding more broadly into suburbs as well. But developers are bringing urban style to suburban locations, with a heavier emphasis on ‘town center’ communities than we’ve seen in the past,” said Obrinsky.
...
The Market Tightness Index rose from 56 to 68. The percentage of respondents who saw looser conditions continued to decline, down from 20 percent to 15 percent. While this improvement is partly seasonal, the index is higher than the average for the July quarter since the survey began 15 years ago.
emphasis added
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. This indicates tighter market conditions.  

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.  The apartment market is still solid right now.