Thursday, December 08, 2016

Goldman: Fiscal Boost: Mainly a 2018 Story 

by Bill McBride on 12/08/2016 04:01:00 PM

A few excerpts from a research piece by Goldman Sachs economist Alec Phillips: Fiscal Boost: Mainly a 2018 Story

We expect fiscal policy to become more expansionary next year, but the timing is uncertain. Our preliminary expectation is that the growth effects from looser fiscal policy would be concentrated in Q4 2017 and the first half of 2018. The timing depends mainly on how long it takes tax legislation to become law, and whether Congress legislates a prolonged phase-in or implements the full tax cut in the first year. ...

Infrastructure and federal spending are also potential factors. On the former, the lags are often quite long ... On the latter, a boost to defense spending looks likely sometime between Q2 and Q4 2017, but this may be partly offset with cuts to non-defense spending in the same timeframe.

The effect of Obamacare “repeal and replace” is less clear, but seems likely to provide a modest net stimulus in the near term—potentially as soon as Q2 2017—as a result of the likely repeal of the taxes used to pay for some of the program. Other changes are likely but seem unlikely to be implemented until 2019.

Animal Spirits and Business Confidence

by Bill McBride on 12/08/2016 01:05:00 PM

A few excerpts from two research reports this morning:

From Merrill Lynch: Animal spirits matter

Anecdotes and surveys suggest that business and consumer confidence has improved following the election. The gain in animal spirits could amplify the boost to the economy from fiscal stimulus, creating upside risk to our forecast. We will have to wait for the "hard data" from November and December to have clarity on the timing and magnitude.
emphasis added
From Wells Fargo: Small Business Confidence Jumps Following the Presidential Election
Small business owners are feeling much more optimistic about the prospects for the economy and their business in the coming year. The latest Wells Fargo/Gallup Small Business Index, which was conducted from Nov. 11 to Nov. 17, jumped 12 points to 80 from the previous quarter and is up 26 points over the past year. Small business optimism is now at its highest level since January 2008, when the index was coming down as the economy slid into recession. The latest reading marks the largest quarterly increase in a little over a year and is one of the largest quarterly gains in the series’ history.
...
While political factors likely influenced the magnitude of the improvement in small business confidence, business owners’ attitudes about the economy and their business have been gradually improving for the past few years. All of the improvement in the most recent quarter, however, came from the expectations series, which jumped 17 points in the fourth quarter. The present situation index fell 5 points, essentially reversing the prior quarter’s gain.

CoreLogic: 384,000 borrowers moved out of negative equity in Q3

by Bill McBride on 12/08/2016 10:05:00 AM

From CoreLogic: CoreLogic Reports Home Equity Increased $726 billion in the Third Quarter Compared With a Year Ago

CoreLogic ... today released a new analysis showing that U.S. homeowners with mortgages (roughly 63 percent of all homeowners) saw their equity increase by a total of $227 billion in Q3 2016 compared with the previous quarter, an increase of 3.1 percent. Additionally, 384,000 borrowers moved out of negative equity, increasing the percentage of homes with positive equity to 93.7 percent of all mortgaged properties, or approximately 47.9 million homes. Year over year, home equity grew by $726 billion, representing an increase of 10.8 percent in Q3 2016 compared with Q3 2015.

In Q3 2016, the total number of mortgaged residential properties with negative equity stood at 3.2 million, or 6.3 percent of all homes with a mortgage. This is a decrease of 10.7 percent quarter over quarter from 3.6 million homes, or 7.1 percent of mortgaged properties, in Q2 2016 and a decrease of 24.1 percent year over year from 4.2 million homes, or 8.4 percent of mortgaged properties, in Q3 2015. ...
...
Negative equity peaked at 26 percent of mortgaged residential properties in Q4 2009, based on CoreLogic negative equity data, which goes back to Q3 2009.
...
“Home equity rose by $12,500 for the average homeowner over the last four quarters,” said Dr. Frank Nothaft, chief economist for CoreLogic. “There was wide geographic variation with homeowners in California, Oregon and Washington gaining an average of at least $25,000 in home equity wealth, while owners in Alaska, North Dakota and Connecticut had small declines, on average.”

“Price appreciation is the main ingredient for home equity wealth creation, and home prices rose 5.8 percent in the year ending September 2016 according to the CoreLogic Home Price Index,” said Anand Nallathambi, president and CEO of CoreLogic. “Paydown of principal is the second key component of equity building. Many homeowners have refinanced into shorter-term loans, such as a 15-year loan, and by doing so, they have significantly fewer mortgage payments and are able to build equity wealth faster.”
emphasis added
On states:
"Nevada had the highest percentage of mortgaged properties in negative equity at 14.2 percent, followed by Florida (12.5 percent), Illinois (10.6 percent), Arizona (10.6 percent) and Rhode Island (10 percent). These top five states combined accounted for 30.6 percent of negative equity mortgages in the U.S., but only 16.3 percent of outstanding mortgages."
Note: The share of negative equity is still high in Nevada and Florida, but down from a year ago.

CoreLogic, LTVClick on graph for larger image.

This graph shows the distribution of home equity in Q3 2016 compared to Q2 2016.

Just over 2% of properties have 25% or more negative equity.  For reference, about four years ago, in Q3 2012, 9.6% of residential properties had 25% or more negative equity.

A year ago, in Q3 2015, there were 4.2 million properties with negative equity - now there are 3.2 million.  A significant change.

Weekly Initial Unemployment Claims decrease to 258,000

by Bill McBride on 12/08/2016 08:33:00 AM

The DOL reported:

In the week ending December 3, the advance figure for seasonally adjusted initial claims was 258,000, a decrease of 10,000 from the previous week's unrevised level of 268,000. The 4-week moving average was 252,500, an increase of 1,000 from the previous week's unrevised average of 251,500.

There were no special factors impacting this week's initial claims. This marks 92 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
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 increased to 252,500.

This was close to the consensus forecast. The low level of claims suggests relatively few layoffs.

Wednesday, December 07, 2016

Thursday: Unemployment Claims

by Bill McBride on 12/07/2016 09:38:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Fall Ahead of European Central Bank Announcement

Mortgage rates moved moderately lower today, as financial markets positioned themselves for an important announcement from the European Central Bank (ECB) tomorrow regarding the possibility of tapering its asset purchases.
...
4.125% remains the most prevalent conventional 30yr fixed rate on top tier scenarios with 4.25% not too far behind. 4.0% is a distant third. Today's rates are most similar to those seen on December 2nd. Things could change in a big way depending on what the ECB says tomorrow, for better or worse.
emphasis added
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, down from 268 thousand the previous week.

• At 10:00 AM, The Q3 Quarterly Services Report from the Census Bureau.

Annual Employment Gains some early thoughts on 2017

by Bill McBride on 12/07/2016 03:00:00 PM

I'm starting to look at my 10 economic questions for 2017 (something I do every year).

Last year I thought the unemployment rate would be 4.5% in December 2016 (the rate fell to 4.6% in November), and that the economy would add around 200,000 jobs per month (down from 2014 and 2015). Through November, the economy has averaged 180,000 per month in 2016.

I'll be looking at several factors for job gains in 2017 - demographics, labor force participation economic growth, fiscal policies, etc. - but my general view is the economy is solid, has room to run, however it is past the peak of the employment gains for this business cycle.  It appears the peak job gains in this cycle was  in 2014.

Annual Employment Gains Click on graph for larger image.

This graph shows the annual job gains for both private and public employment.

In the '80s, annual private employment gains peaked at 3.6 million in 1984, however the employment expansion continued for five more years.

In the '90s, private employment gains peaked in 1994 at 3.6 million, and gains continued for 6 more years.

In the current cycle, private gains peaked at 2.9 million in 2014.

The demographics are very different than from the '80s. The prime working age population was growing very quickly in the '80s, and the prime age population started shrinking starting in 2007 (and bottomed in 2012).  So the peak year of this cycle wasn't as strong.

With current demographics, it only takes 60 to 80 thousand jobs added per month to keep the unemployment rate steady (this is far less than in the '80s or '90s).   Since we are nearing full employment, my initial guess is the economy will add fewer jobs in 2017 than in 2014 or 2015.

I'll post my Ten Questions for 2017 and some guesses for 2017 in a few weeks.

Las Vegas Real Estate in November: Sales up 30% YoY, Inventory down Sharply

by Bill McBride on 12/07/2016 11:49:00 AM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada Home Prices and Sales Increasing Heading into Holidays, GLVAR Housing Statistics for November 2016

The Greater Las Vegas Association of REALTORS® (GLVAR) reported Wednesday that Southern Nevada home prices bucked seasonal trends and increased heading into the holidays while home sales continued to exceed last year’s pace.
...
According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in November was 3,244. That was up 30.0 percent from one year ago. Compared to the same month one year ago, 31.8 percent more homes, and 31.2 percent more condos and townhomes sold in November.

So far in 2016, Beaudry said Southern Nevada is on pace to sell more existing homes this year than during 2015 and during 2014, but fewer than during each of the previous five years.

He added that inventory remains tight, with less than a three-month supply of homes available for sale, when a six-month supply is considered to be a balanced market.
...
By the end of November, GLVAR reported 7,252 single-family homes listed for sale without any sort of offer. That’s down 30.3 percent from one year ago. For condos and townhomes, the 1,141 properties listed without offers in November represented a 49.0 percent decrease from one year ago.
emphasis added
1) Overall sales were up 30% year-over-year.

2) Active inventory (single-family and condos) is down sharply from a year ago (A very sharp decline in both single family and condo inventory).

This is the second market (Phoenix reported yesterday) with sales up 30% year-over-year. There might be some seasonal factors (more selling days), but this is a significant increase in these markets.

BLS: Job Openings "little changed" in October

by Bill McBride on 12/07/2016 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 5.5 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were also little changed at 5.1 million and 4.9 million, respectively....
...
The number of quits was little changed in October at 3.0 million. The quits rate was 2.1 percent. Over the month, the number of quits was little changed for total private, and decreased for government (-26,000).
emphasis added
The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for October, the most recent employment report was for November.

Job Openings and Labor Turnover Survey Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings decreased in October to 5.534 million from 5.631 million in September.  Job openings are mostly moving sideways at a high level.

The number of job openings (yellow) are up 2% year-over-year.

Quits are up 7% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another solid report.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 12/07/2016 07:00:00 AM

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

Mortgage applications decreased 0.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 2, 2016. The prior week’s results included an adjustment for the Thanksgiving holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 0.4 percent from one week earlier. The unadjusted Purchase Index increased 36 percent compared with the previous week and was 3 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since October 2014, 4.27 percent, from 4.23 percent, with points decreasing to 0.37 from 0.41 (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 since 1990.

With the current level of mortgage rates, refinance activity will probably decline further.


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

The purchase index was "3 percent higher than the same week one year ago".

Tuesday, December 06, 2016

Wednesday: Job Openings

by Bill McBride on 12/06/2016 07:30:00 PM

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

• At 10:00 AM, Job Openings and Labor Turnover Survey for October from the BLS. Jobs openings decreased in September to 5.486 million from 5.453 million in August. The number of job openings were up 2% year-over-year in September, and Quits were up 12% year-over-year.

• At 3:00 PM, Consumer credit from the Federal Reserve.  The consensus is for a $19.0 billion increase in credit.