Monday, July 28, 2014

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

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
1 2014 is current pace annualized (through June).

• 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

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 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

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).

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