Tuesday, May 31, 2016

Personal Income increased 0.4% in April, Spending increased 1.0%

by Bill McBride on 5/31/2016 08:36:00 AM

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

Personal income increased $69.8 billion, or 0.4 percent ...in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $119.2 billion, or 1.0 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.6 percent in April, in contrast to a decrease of less than 0.1 percent in March. ... The price index for PCE increased 0.3 percent in April, compared with an increase of 0.1 percent in March. The PCE price index, excluding food and energy, increased 0.2 percent, compared with an increase of 0.1 percent.

The April PCE price index increased 1.1 percent from April a year ago. The April PCE price index, excluding food and energy, increased 1.6 percent from April a year ago.
The following graph shows real Personal Consumption Expenditures (PCE) through April 2016 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was at consensus expectations.  And the increase in PCE was above the consensus. A solid start for Q2.

On inflation: The PCE price index increased 1.1 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.6 percent year-over-year in April.

Monday, May 30, 2016

Tuesday: Personal Income and Outlays, Case-Shiller House Prices, Chicago PMI

by Bill McBride on 5/30/2016 07:54:00 PM

Tuesday:
• At 8:30 AM ET, Personal Income and Outlays for April. The consensus is for a 0.4% increase in personal income, and for a 0.7% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:00 AM, S&P/Case-Shiller House Price Index for March. Although this is the February report, it is really a 3 month average of January, February and March prices. The consensus is for a 5.1% year-over-year increase in the Comp 20 index for March. The Zillow forecast is for the National Index to increase 5.3% year-over-year in March.

• At 9:45 AM, Chicago Purchasing Managers Index for May. The consensus is for a reading of 50.7, up from 50.4 in April.

• At 10:00 AM, the Dallas Fed Survey of Manufacturing Activity for May.

Weekend:
Schedule for Week of May 29, 2016

The War on Data

From CNBC: Pre-Market Data and Bloomberg futures: S&P are up 5 and DOW futures are up 50 (fair value).

Oil prices were up over the last week with WTI futures at $49.49 per barrel and Brent at $49.76 per barrel.  A year ago, WTI was at $60, and Brent was at $63 - so prices are down about 20%+ year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.32 per gallon (down about $0.40 per gallon from a year ago).

Hamilton: 'Trends in oil supply and demand'

by Bill McBride on 5/30/2016 10:48:00 AM

From Professor Hamilton at Econbrowser: Trends in oil supply and demand. A few excerpts:

The new supplies from the U.S., Iraq, and Iran brought prices down dramatically. And in response, demand has been climbing back up. U.S. consumption over the last 12 months was 800,000 b/d higher than in 2013, a 4% increase. Vehicle miles traveled in the U.S. are up 6% over the last two years.
...
Low prices are increasing demand and will also dramatically reduce supply. The EIA is estimating that U.S. production from shale formations is down almost a million barrels a day from last year.

These factors all contributed to a rebound in the price of oil, which traded below $30/barrel at the start of this year but is now back close to $50.

Nevertheless, I doubt that $50 is high enough to reverse the decline in U.S. shale production. Nor is the slashing that we’ve seen in longer-term oil-producing projects about to be undone. And while there is enough geopolitical stability at the moment in places like Iraq and Iran to sustain significantly higher levels of production than we saw in 2013, there is no shortage of news elsewhere in the world that could develop into important new disruptions. For example, conflict in Nigeria may cut that country’s oil production by a million barrels a day.

Adding a million barrels/day to U.S. oil demand and subtracting 2 million b/d from U.S. and Nigerian supply would seem to go a long way toward erasing that glut in oil supply that we’ve been hearing about.

Sunday, May 29, 2016

Gasoline Prices: Down 40 cents per gallon from last year on Memorial Day

by Bill McBride on 5/29/2016 07:55:00 PM

According to Gasbuddy.com, gasoline prices are down to a national average of $2.33 per gallon. One year ago for the week of Memorial Day, prices were at $2.75 per gallon, and for the same week two years ago prices were $3.75 per gallon.

This is the lowest Memorial Day gasoline prices since 2005 (even lower than in 2009).

Ten years ago, price were at $2.94 per gallon, and fifteen years ago at $1.74.

Memorial DayWeekly Average
Gasoline Price
29-May-00$1.57
28-May-01$1.74
27-May-02$1.43
26-May-03$1.53
31-May-04$2.10
30-May-05$2.17
29-May-06$2.94
28-May-07$3.25
26-May-08$3.99
25-May-09$2.49
31-May-10$2.84
30-May-11$3.90
28-May-12$3.73
27-May-13$3.70
26-May-14$3.75
25-May-15$2.75
29-May-16$2.33


According to Bloomberg, WTI oil is at $49.61 per barrel, and Brent is at $49.60 per barrel.  Last year on Memorial Day, Brent was at $65.37 per barrel, and two years ago Brent was at $110.01.

The War on Data

by Bill McBride on 5/29/2016 10:38:00 AM

People have different priorities and different values. But we share the same data.  Over the last few days, we've heard a presidential contender make comments completing ignoring the data.   This should concern everyone - ignoring data leads to irresponsible comments and poor policy decisions.

First, I live in California, and I was shocked to hear Donald Trump say there is no drought in the state.  That is the opposite of what the data says!

Here is an excerpt from Daniel Swain at the California Weather Blog (written 10 days ago discussing the data):

While the reservoirs in California’s wetter, more northern reaches have reached (or are nearing) capacity after a slightly wetter-than-average winter in that part of the state, multi-year water deficits remain enormous. The 2015-2016 winter did bring some drought relief to California, but nearly all long-term drought indicators continue to suggest that California remains in a significant drought. Residents of Southern California–who witnessed a much drier than average winter this year despite the occurrence of one of the strongest El NiƱo events on record–can certainly attest to this. In fact, nearly all of California is still “missing” at least 1 year’s worth of precipitation over the past 4 years, and in Southern California the numbers suggest closer to 2-3 years’ worth of “missing” rain and snow. These numbers, of course, don’t even begin to account for the effect of consecutive years of record-high temperatures, which have dramatically increased evaporation in our already drought-stressed region.
emphasis added
For the current year, these tables show the snowpack in the North, Central and South Sierra. Currently the statewide snowpack is about 29% of normal for this date.

Tyndall CreekThis graph shows the snow water content for Upper Tyndall Creek for the last 20+ years.

For Pacific Crest Trail and John Muir Trail hikers, I recommend using the Upper Tyndall Creek sensor to track the snow conditions. This is the fifth dry year in a row along the JMT - although more snow than the previous four years.

As Swain noted, "California remains in a significant drought". Mr. Trump's comments were incorrect and irresponsible.

Second, Mr. Trump was also quoted as saying that anyone who believes the unemployment rate is 5% is a "dummy".
Trump says he thinks the US unemployment rate is close to 20 percent and not the 5 percent reported by the Labor Department.

Anyone who believes the 5 percent is a “dummy,” he said.
I don't believe the headline U-3 unemployment rate tells the entire story, and that is why I also track U-6 (a measure of underemployment) and other measures.  But U-3 is measured in a transparent way - and remains a key measure of unemployment - and is measured consistently.

When we use U-6 (includes "unemployed, plus all marginally attached workers plus total employed part time for economic reasons") we need to compare to previous readings of  U-6, not previous readings of U-3.   Currently U-6 is at 9.7%.  U-6 bottomed in 2006 at 7.9% and in 2000 at 6.8%.  So U-6 is still elevated and there is still slack in the labor market.

Also, some people think the participation rate will increase significantly as the labor market improves.  I've written about the participation rate extensively, and I've pointed out that most of the recent decline in the participation rate can be explained by demographics and various long term trends.  There is no huge hidden pool of workers that will suddenly show up in the labor force.

Looking at the data, Mr. Trump's suggestion that unemployment is closer to 20% than 5% is absurd.

I guess Trump thinks I'm a "dummy"!  I think he is reckless and irresponsible.

Saturday, May 28, 2016

May 2016: Unofficial Problem Bank list declines to 205 Institutions

by Bill McBride on 5/28/2016 02:09:00 PM

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

Here is the unofficial problem bank list for May 2016.

Changes and comments from surferdude808:

Update on the Unofficial Problem Bank List for May 2016. During the month, the list fell from 214 institutions to 205 after 12 removals and three additions. Assets dropped by $1.6 billion, even after a $343 million increase with the roll to 2016q1 figures, to an aggregate $60.8 billion. A year ago, the list held 324 institutions with assets of $91.2 billion. We were expecting the FDIC to release first quarter industry results and an update on the Official Problem Bank List but the FDIC was a no-show.

Actions have been terminated against Home State Bank, National Association, Crystal Lake, IL ($603 million); International Bank of Chicago, Chicago, IL ($503 million); Pan American Bank, Los Angeles, CA ($160 million Ticker: PAMB); Citizens Bank & Trust Company, Eastman, GA ($130 million); American Founders Bank, Inc., Lexington, KY ($100 million); and SouthFirst Bank, Sylacauga, AL ($89 million Ticker: SZBI). Pan American Bank had been operating under an enforcement action since 2005.

Other departure methods included the failure of First CornerStone Bank, King of Prussia, PA ($107 million); voluntary liquidation of SouthBank, a Federal Savings Bank, Huntsville, AL ($65 million); and the mergers of National Bank of California, Los Angeles, CA ($424 million Ticker: NCAL); National Bank of Tennessee, Newport, TN ($144 million); Park Federal Savings Bank, Chicago, IL ($142 million Ticker: PFED); and American Bank of Huntsville, Huntsville, AL ($113 million). The removal SouthBank is an infrequent way to leave the list with the last voluntary liquidation removal being Hartford Savings Bank, Hartford, WI, back in March 2014.

Added this month were Delaware Place Bank, Chicago, IL ($265 million); Indus American Bank, Edison, NJ ($247 million); and The First National Bank of Scott City, Scott City, KS ($121 million). This is the most new monthly additions to the list since December 2015.

Schedule for Week of May 29, 2016

by Bill McBride on 5/28/2016 08:09:00 AM

The key report this week is the May employment report on Friday.

Other key indicators include May vehicle sales, the May ISM manufacturing and non-manufacturing indexes, and the April trade deficit.

----- Monday, May 30th -----

All US markets will be closed in observance of Memorial Day.

----- Tuesday, May 31st -----

8:30 AM ET: Personal Income and Outlays for April. The consensus is for a 0.4% increase in personal income, and for a 0.7% increase in personal spending. And for the Core PCE price index to increase 0.2%.

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

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the February 2016 report (the Composite 20 was started in January 2000).

The consensus is for a 5.1% year-over-year increase in the Comp 20 index for March. The Zillow forecast is for the National Index to increase 5.3% year-over-year in March.

9:45 AM: Chicago Purchasing Managers Index for May. The consensus is for a reading of 50.7, up from 50.4 in April.

10:00 AM: Dallas Fed Survey of Manufacturing Activity for May.

----- Wednesday, June 1st -----

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

8:15 AM: The ADP Employment Report for May. This report is for private payrolls only (no government). The consensus is for 175,000 payroll jobs added in May, up from 156,000 added in April.

ISM PMI10:00 AM: ISM Manufacturing Index for May. The consensus is for the ISM to be at 50.6, down from 50.8 in April.

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

The ISM manufacturing index indicated expansion at 50.8% in April. The employment index was at 49.2%, and the new orders index was at 55.8%.

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

Vehicle SalesAll day: Light vehicle sales for May. The consensus is for light vehicle sales to decrease to 17.3 million SAAR in May from 17.4 million in April (Seasonally Adjusted Annual Rate).

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

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, June 2nd -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 267 thousand initial claims, down from 268 thousand the previous week.

----- Friday, June 3rd -----

8:30 AM: Employment Report for May. The consensus is for an increase of 158,000 non-farm payroll jobs added in May, down from the 160,000 non-farm payroll jobs added in April.

The consensus is for the unemployment rate to decline to 4.9%.

Year-over-year change employmentThis graph shows the year-over-year change in total non-farm employment since 1968.

In April, the year-over-year change was 2.69 million jobs.

A key will be the change in wages.

U.S. Trade Deficit8:30 AM: Trade Balance report for April from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through March. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $41.0 billion in April from $40.4 billion in March.

10:00 AM: the ISM non-Manufacturing Index for May. The consensus is for index to decrease to 55.5 from 55.7 in April.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for April. The consensus is a 2.0% increase in orders.

Friday, May 27, 2016

Fannie Mae and Freddie Mac: Mortgage Serious Delinquency rates declined in April

by Bill McBride on 5/27/2016 04:51:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate decreased in April to 1.15% from 1.20% in March.  Freddie's rate is down from 1.66% in April 2015. This is the lowest rate since August 2008.

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". 

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in April to 1.40%, down from 1.44% in March. The serious delinquency rate is down from 1.73% in April 2015.

This is the lowest rate since June 2008.

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. 

The Freddie Mac serious delinquency rate has fallen 0.51 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will be below 1% until the second half of this year.

The Fannie Mae serious delinquency rate has fallen 0.33 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of 2017.

I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Lawler: Sustained Regional Home Price Declines Were Not That Uncommon from the Mid-80’s to the Mid-90’s

by Bill McBride on 5/27/2016 12:29:00 PM

From housing economist Tom Lawler: Sustained Regional Home Price Declines Were Not That Uncommon from the Mid-80’s to the Mid-90’s

During any 5-year period that including any part the late 70’s there were virtually no areas that experienced a drop in home prices. That isn’t too surprising given the high inflation rate/nominal income growth rate of the period. What was more surprising is that for any 5-year periods ending from early 2000 (which basically means the latter half of the 1990’s) to the fall of 2006 there were no MSA which experienced a drop in home prices, since those periods were characterized by relative modest inflation and nominal income growth.

It is worth noting that most “models” of mortgage defaults used in the early and mid 2000’s were based on loans originated from 1995/6 or later, as it was around then that the use of credit scores become widespread. As such, these “models” used a period when there were hardly any parts of the country where home prices had declined. ...  During this period actual mortgage losses were incredibly low, models predicted low losses going forward, and in hindsight it’s not surprising that mortgage lending criteria eased considerably over the period, moving from “historically very easy” in 2000-2001 to “ridiculously easy” in the 2003-2006” period.
Click on graph for larger image.

Chart uses Freddie Mac’s Home Price Index for 381 MSAs. The chart shows the number of MSA HPIs that declined over a rolling 5-year (60 month) period.
These models based on “good times” proved to be useless in predicting how mortgages performed during “bad times,” which was “a tragedy” that was predicted by the band Poison in its most excellent song “Good Times, Bad Times, How Life Loves a Tragedy.”1

1 See, e.g., “Model Stability and the Subprime Mortgage Crisis,” An, Deng, Rosenblatt, and Yen, September 2010.
CR Note: These are some key point in understanding the bubble. The models used to predict defaults were based on a period with rising home prices, and also on a period with different lending criteria. In the early '90s, lending was based on the 3Cs (Collateral, Capacity, and Credit), and that moved to mostly credit scores in the 2000s.

Consumer Sentiment at 94.7

by Bill McBride on 5/27/2016 10:05:00 AM

Consumer Sentiment
Click on graph for larger image.

The University of Michigan consumer sentiment index for May was at 94.7, down from the preliminary reading of 95.8, and up from 89.0 in April:

"Consumers were a bit less optimistic in late May than earlier in the month, but sentiment was still substantially higher than last month. Indeed, there have only been four prior months since the January 2007 peak in which the Sentiment Index was higher than in May 2016, all recorded at the start of 2015. Despite the meager GDP growth as well as a higher inflation rate, consumers became more optimistic about their financial prospects and anticipated a somewhat lower inflation rate in the years ahead. Positive views toward vehicle and home sales also posted gains in May largely due to low interest rates. The biggest uncertainty consumers see on the horizon is not whether the Fed will hike interest rates in the next few months, but the outlook for future government economic policies under a new president. "
emphasis added