Thursday, December 14, 2017

Friday: Industrial Produciton, NY Fed Mfg Survey

by Bill McBride on 12/14/2017 07:28:00 PM

From Merrill Lynch:

The strong retail sales data provided a 0.3pp boost to our 4Q GDP tracking estimate, bringing it up to 2.4%.
• At 8:30 AM ET, The New York Fed Empire State manufacturing survey for December. The consensus is for a reading of 18.0, down from 19.4.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for November. The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 77.2%.

It Never Rains in California

by Bill McBride on 12/14/2017 03:29:00 PM

After enduring a five year drought, California finally had a decent rainy season last year. But this season is off to a very slow start.

Here are a few resources to track the rain and snow.

These tables show the snowpack in the North, Central and South Sierra. Currently the snowpack is about 29% of normal for this date in the North, 41% of normal in the Central Sierra, and 38% of normal in the Southern Sierra.  A slow start to the season.

And here are some plots comparing the current and previous years to the average, a very dry year ('14-'15) and a wet year ('82-'83). This winter is tracking the drought years.

And for Los Angeles, here is a historical table of annual rainfall. After one year of significantly above average rainfall, this year is below normal (and there is no rain in sight - just smoke from the fires).

It is very early in the season, but this is a weak start.

Hotel Occupancy Rate Increased Year-over-Year, 2017 will be Record Occupancy Year

by Bill McBride on 12/14/2017 12:01:00 PM

From STR: US hotel results for week ending 9 December

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 3-9 December 2017, according to data from STR.

In comparison with the week of 4-10 December 2016, the industry recorded the following:

Occupancy: +2.7% to 60.7%
• Average daily rate (ADR): +4.0% to US$125.07
• Revenue per available room (RevPAR): +6.8% to US$75.97

Among the Top 25 Markets, Miami/Hialeah, Florida, reported the largest increase in RevPAR (+83.0% to US$234.96), due primarily to the largest lift in ADR (+57.4% to US$272.55). While hosting Art Basel, the market experienced the second-highest rise in occupancy (+16.3% to 86.2%).

Houston, Texas, saw the largest increase in occupancy (+17.5% to 73.5%), which produced double-digit growth in RevPAR (+22.6% to US$81.63).
emphasis added
Note: The hurricanes continue to drive demand in Texas and Florida, especially in Houston.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateThe red line is for 2017, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate, to date, is ahead of the record year in 2015.  The hurricanes will push the annual occupancy rate to a new record in 2017.

Data Source: STR, Courtesy of

Retail Sales increased 0.8% in November

by Bill McBride on 12/14/2017 08:53:00 AM

On a monthly basis, retail sales increased 0.8 percent from October to November (seasonally adjusted), and sales were up 5.8 percent from November 2016.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for November 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $492.7 billion, an increase of 0.8 percent from the previous month, and 5.8 percent above November 2016 ... The September 2017 to October 2017 percent change was revised from up 0.2 percent to up 0.5 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 ex-gasoline were up 0.6% in November.

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

Year-over-year change in Retail Sales Retail and Food service sales, ex-gasoline, increased by 5.0% on a YoY basis.

The increase in November was well above expectations, and sales in September and October were revised up. A solid report.

Weekly Initial Unemployment Claims decrease to 225,000

by Bill McBride on 12/14/2017 08:36:00 AM

The DOL reported:

n the week ending December 9, the advance figure for seasonally adjusted initial claims was 225,000, a decrease of 11,000 from the previous week's unrevised level of 236,000. The 4-week moving average was 234,750, a decrease of 6,750 from the previous week's unrevised average of 241,500.

Claims taking procedures continue to be disrupted in the Virgin Islands. The claims taking process in Puerto Rico has still not returned to normal.
emphasis added
The previous week was unrevised.

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

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 234,750.

This was lower than the consensus forecast. The low level of claims suggest relatively few layoffs.

Wednesday, December 13, 2017

Thursday: Retail Sales, Unemployment Claims

by Bill McBride on 12/13/2017 06:35:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Quickly Lower After Inflation Data and Fed

Mortgage rates fell fairly quickly this afternoon following the Federal Reserves updated economic projections. [30YR FIXED - 4.0%]. ... rates had long since adjusted to today's rate hike--so much so that the hike itself was a non-event. Again, it was the update economic projections that helped rates move lower this afternoon. Fed Chair Yellen's press conference played a major role as well.

Even before the Fed news came out, a weaker reading on an important inflation report helped bond markets get into positive territory on the day. The net effect of the Fed and the economic data was a moderately quick move back to last week's low rates.
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, up from 236 thousand the previous week.

• Also at 8:30 AM, Retail sales for November be released.  The consensus is for a 0.3% increase in retail sales.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for October.  The consensus is for a 0.1% decrease in inventories.

FOMC Projections and Press Conference Link

by Bill McBride on 12/13/2017 02:10:00 PM

Statement here.

Yellen press conference video here.

On the projections, projections for GDP in 2017 are near the top of the September range.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
Dec 20172.4 to 2.52.2 to 2.61.9 to 2.31.7 to 2.0
Sept 2017 2.2 to 2.52.0 to 2.3 1.7 to 2.11.6 to 2.0
June 2017 2.1 to 2.21.8 to 2.21.8 to 2.0---
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 4.1% in October and November, so the unemployment rate projection for Q4 2017 was revised down.  The unemployment rate for 2018 and 2019 were also revised down too.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Dec 2017 4.13.7 to 4.03.6 to 4.03.6 to 4.2
Sept 2017 4.2 to 4.34.0 to 4.23.9 to 4.44.0 to 4.5
June 2017 4.2 to 4.34.0 to 4.34.1 to 4.4---
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of October, PCE inflation was up 1.6% from October 2016.  Based on recent readings, PCE inflation was revised up slightly for Q4 2017, and down for 2018.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Dec 2017 1.6 to 1.71.7 to to 2.1
Sept 2017 1.5 to 1.61.8 to to 2.1
June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1---

PCE core inflation was up 1.4% in October year-over-year.  Core PCE inflation was unchanged for Q4 2017, and revised down for 2018.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Dec 2017 1.51.7 to to 2.1
Sept 2017 1.5 to 1.61.8 to to 2.1
June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1---

FOMC Statement: 25bps Rate Hike

by Bill McBride on 12/13/2017 02:01:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, both overall inflation and inflation for items other than food and energy have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricane-related disruptions and rebuilding have affected economic activity, employment, and inflation in recent months but have not materially altered the outlook for the national economy. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12‑month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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 and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Voting for the FOMC monetary policy action were Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Randal K. Quarles. Voting against the action were Charles L. Evans and Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.
emphasis added

Key Measures Show Inflation Mostly Below Fed's Target

by Bill McBride on 12/13/2017 11:14:00 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% (2.7% annualized rate) in November. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.4% 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 0.4% (4.7% annualized rate) in November. The CPI less food and energy rose 0.1% (1.4% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed released the median CPI details for November here. Motor fuel increased 131% annualized in November.

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 2.3%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for October and increased 1.4% year-over-year.

On a monthly basis, median CPI was at 2.7% annualized, trimmed-mean CPI was at 2.4% annualized, and core CPI was at 1.4% annualized.

Using these measures, inflation picked up a little year-over-year in November.  However, overall, these measures are mostly below the Fed's 2% target  (Median CPI is slightly above).

BLS: CPI increased 0.4% in November, Core CPI increased 0.1%

by Bill McBride on 12/13/2017 08:38:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.2 percent.
The index for all items less food and energy increased 0.1 percent in November. ... The all items index rose 2.2 percent for the 12 months ending November. The index for all items less food and energy rose 1.7 percent, a slight decline from the 1.8-percent increase for the period ending October.
emphasis added
I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was at the consensus forecast of a 0.4% increase for CPI, and below the forecast of a 0.1% increase in core CPI.