by Calculated Risk on 1/04/2015 07:47:00 PM

Starting in 2009, there were always a large number of analysts predicting the Fed would raise rates very soon (not me) - until Bernanke and the FOMC stopped that speculation when they included the following phrase in the August 2011 statement: "The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

That was eventually changed to "late 2014", and then to "mid-2015" ... now it seems likely the FOMC will raise rates this year. It has been a long long time!

From the WSJ: As Fed Prepares to Raise Rates, Economists Caution of Potential Bumps

“If we do it right, we don’t put the economy off-kilter,” said Federal Reserve Bank of Boston President Eric Rosengren . But “there are unusual conditions that I think complicate the normalization of rates this time.”

For instance, the current low level of long-term interest rates “indicates that there may be a bumpier ride, just because there needs to be an adjustment at some point along the cycle,” he said.

Still, Mr. Rosengren and others who spoke over the weekend at the American Economic Association’s annual meeting in Boston expressed relief that the U.S. economy has healed to the point where officials can seriously consider their first rate increase since 2006.

It is remarkable, said New York University economist Mark Gertler, that “after six or seven years, we’re finally talking about policy normalization, and it’s not a hypothetical conversation.”

Monday:
• Early: Reis Q4 2014 Office Survey of rents and vacancy rates.

• All day: Light vehicle sales for December. The consensus is for light vehicle sales to decrease to 16.9 million SAAR in December from 17.1 million in November (Seasonally Adjusted Annual Rate).

Weekend:
• Schedule for Week of January 4, 2015

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 14 and DOW futures are down 100 (fair value).

Oil prices were down over the last week with WTI futures at $52.69 per barrel and Brent at $56.42 per barrel.  A year ago, WTI was at $94, and Brent was at $107 - so prices are down 44% and 47% year-over-year respectively.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.20 per gallon (down about $1.10 per gallon 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

by Calculated Risk on 1/04/2015 09:53:00 AM

Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs.

The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).

Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand), however prices didn't fall as sharply either.

Click on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through Dec 19th (via NAHB), and 2) CME framing futures.

Right now Random Lengths prices are down about 2% from a year ago, and CME futures are down 9% year-over-year. Mostly prices have moved sideways for the last 18 months.

by Calculated Risk on 1/03/2015 11:29:00 AM

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

Other key reports include December vehicle sales on Monday, the December ISM non-manufacturing index on Tuesday, and the November Trade Deficit on Wednesday.

Also, Reis will release their quarterly surveys of rents and vacancy rates for offices, apartments and malls.

----- Monday, January 5th -----
Early: Reis Q4 2014 Office Survey of rents and vacancy rates.

All day: Light vehicle sales for December. The consensus is for light vehicle sales to decrease to 16.9 million SAAR in December from 17.1 million in November (Seasonally Adjusted Annual Rate).

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

----- Tuesday, January 6th -----
Early: Reis Q4 2014 Apartment Survey of rents and vacancy rates.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for November. The consensus is for a 0.2 decrease in November orders.

10:00 AM: ISM non-Manufacturing Index for December. The consensus is for a reading of 58.2, down from 59.3 in November. Note: Above 50 indicates expansion.

----- Wednesday, January 7th -----
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 December. This report is for private payrolls only (no government). The consensus is for 223,000 payroll jobs added in December, up from 207,000 in November.

8:30 AM: Trade Balance report for November from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through October. 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 $42.0 billion in November from $43.4 billion in October.

Early: Reis Q4 2014 Mall Survey of rents and vacancy rates.

2:00 PM: FOMC Minutes for Meeting of December 16-17, 2014

----- Thursday, January 8th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 300 thousand from 298 thousand.

Early: Trulia Price Rent Monitors for December. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

3:00 PM: Consumer Credit for November from the Federal Reserve.  The consensus is for credit to increase $15.0 billion.

----- Friday, January 9th -----
8:30 AM: Employment Report for December. The consensus is for an increase of 240,000 non-farm payroll jobs added in December, down from the 321,000 non-farm payroll jobs added in November.

The consensus is for the unemployment rate to decline to 5.7% in December from 5.8% the previous month.

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

In November, the year-over-year change was 2.73 million jobs, and that should increase further in December.  Barring a huge downside surprise in the December report, 2014 will be the best year since the '90s for both total nonfarm and private sector employment growth.

As always, a key will be the change in real wages - and as the unemployment rate falls, wage growth should eventually start to pickup.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for November. The consensus is for a 0.3% increase in inventories.

by Calculated Risk on 1/02/2015 09:28:00 PM

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

Here is the unofficial problem bank list for Jan 2, 2015.

Changes and comments from surferdude808:

This past Monday, the FDIC released an update on its enforcement action activities through November 2014. The release contributed to several changes to the Unofficial Problem Bank List this week. After three removals and two additions, the list holds 400 institutions with assets of $124.8 billion. A year ago, the list held 618 institutions with assets of $205.6 billion.

The FDIC terminated actions against Legacy Bank of Florida, Boca Raton, FL ($275 million); First Home Bank, Seminole, FL ($76 million); and Bank of Wrightsville, Wrightsville, GA ($52 million).

The FDIC issued actions against The Elkhart State Bank, Elkhart, TX ($53 million) and State Bank of Burnettsville, Burnettsville, IN ($49 million).

Next week likely will be slow in terms of changes to the list.

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 400.

by Calculated Risk on 1/02/2015 06:25:00 PM

A funny quote today from Gluskin Sheff economist David Rosenberg via CNBC: Rosenberg: Perma-bears on the 'lunatic fringe'

"There are segments of the perma-bear community that literally live their lives on the lunatic fringe," Rosenberg wrote ... "This is heavier than religion, the tea party or Red Sox Nation for that matter. To these fanatics, if the market rallies, it is due to some unholy alliance somewhere, and if the market dives, it is a case of good triumphing over evil."

He mentions being attacked by the lunatic fringe. I can relate - the perma-bears thought I was one of their own until I wrote "Looking for the Sun" in early 2009 (my first slightly positive post in four years of blogging).  After that post (first of many more positive posts) I was inundated with angry emails. Oh well ...

As an aside, the market is up about 55% since Rosenberg turned more positive in June 2012.

by Calculated Risk on 1/02/2015 01:57:00 PM

From HotelNewsNow.com: STR: US results for week ending 27 December

The U.S. hotel industry recorded mostly positive results in the three key performance measurements during the week of 21-27 December 2014, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy was flat at 44.4 percent. Average daily rate increased 1.5 percent to finish the week at US$110.71. Revenue per available room for the week was up 1.5 percent to finish at US$49.18.
emphasis added

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

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

Hotels are now in the slow period of the year.

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 since mid-June, the occupancy rate has been a little higher than for the same period in 2000.

With the strong finish, the occupancy rate in 2014 was about the same as in 2000!

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

by Calculated Risk on 1/02/2015 11:31:00 AM

The Census Bureau reported that overall construction spending decreased in November:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2014 was estimated at a seasonally adjusted annual rate of $975.0 billion, 0.3 percent below the revised October estimate of $977.7 billion.

Private spending increased and public spending decreased in November:

Spending on private construction was at a seasonally adjusted annual rate of $697.7 billion, 0.3 percent above the revised October estimate of $695.7 billion. Residential construction was at a seasonally adjusted annual rate of $352.7 billion in November, 0.9 percent above the revised October estimate of $349.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $345.0 billion in November, 0.3 percent below the revised October estimate of $346.1 billion. ...

In November, the estimated seasonally adjusted annual rate of public construction spending was $277.3 billion, 1.7 percent below the revised October estimate of $282.0 billion.
emphasis added

Note: Non-residential for offices and hotels is increasing, but spending for oil and gas is generally declining (up slightly in November from October). Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

As an example, construction spending for lodging is up 11% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 48% below the peak in early 2006 - but up 54% from the post-bubble low.

Non-residential spending is 18% below the peak in January 2008, and up about 53% from the recent low.

Public construction spending is now 15% below the peak in March 2009 and about 5% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now unchanged. Non-residential spending is up 5% year-over-year. Public spending is up 3% year-over-year.

Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has probably hit bottom after several years of austerity.

This was below the consensus forecast of a 0.5% increase, however there were some upward revisions to spending in September and October.

by Calculated Risk on 1/02/2015 10:00:00 AM

The ISM manufacturing index suggests slower expansion in December than in November. The PMI was at 55.5% in December, down from 58.7% in November. The employment index was at 56.8%, up from 54.9% in November, and the new orders index was at 57.3%, down from 66.0%.

From the Institute for Supply Management: December 2014 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in December for the 19th consecutive month, and the overall economy grew for the 67th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The December PMI® registered 55.5 percent, a decrease of 3.2 percentage points from November’s reading of 58.7 percent. The New Orders Index registered 57.3 percent, a decrease of 8.7 percentage points from the reading of 66 percent in November. The Production Index registered 58.8 percent, 5.6 percentage points below the November reading of 64.4 percent. The Employment Index registered 56.8 percent, an increase of 1.9 percentage points above the November reading of 54.9 percent. Inventories of raw materials registered 45.5 percent, a decrease of 6 percentage points from the November reading of 51.5 percent. The Prices Index registered 38.5 percent, down 6 percentage points from the November reading of 44.5 percent, indicating lower raw materials prices in December relative to November. Comments from the panel are mixed, with some indicating that falling oil prices have an upside while others indicate a downside. Other comments mention the negative impact on imported materials shipment due to the West Coast dock slowdown."
emphasis added

Click on graph for larger image.

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

This was below expectations of 57.5%, but still indicates decent expansion in December.  The West Coast port issue is ongoing.

by Calculated Risk on 1/01/2015 08:47:00 PM

From Nick Timiraos at the WSJ: Housing Market Enters 2015 Facing Affordability Pressures

Some of the price declines were exacerbated by a glut of foreclosures. The subsequent rebound reflected increased investor demand for those bargain-priced properties ...

As foreclosures have faded and investor-purchasers stepped back from the market, price gains have slowed. In October, home prices had increased 4.6% from their year-earlier level, compared to a year-over-year gain of 10.9% in October 2013.

An open question in the coming year is whether price gains stabilize at those lower levels or whether they weaken further. Research firm Zelman & Associates expects price gains of 4% in 2015 and 3% in 2016.

But some market specialists say prices may need to give if sales are to rise. “In a few markets, there will be price declines,” [Glenn Kelman, chief executive of real-estate brokerage Redfin] said, “and maybe in more than a few.”

Friday:
• At 10:00 AM ET, the ISM Manufacturing Index for December. The consensus is for a decrease to 57.5 from 58.7 in November. The ISM manufacturing index indicated solid expansion in November at 58.7%. The employment index was at 54.9%, and the new orders index was at 66.0%.

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

by Calculated Risk on 1/01/2015 11:24:00 AM

Happy New Year! I did my part last night to help the restaurant index for December :-)

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Remains in Positive Territory

Buoyed by positive sales and traffic and an optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) remained in positive territory in November. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.1 in November, down slightly from its October level of 102.8. November marked the 21st consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The RPI registered a modest decline in November, as sales and customer traffic results were somewhat softer than their solid October levels,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, a majority of restaurant operators still reported higher same-store sales in November, and they are increasingly optimistic that business conditions will continue to improve in the months ahead.”

“Overall, the RPI topped the 102 level for the second consecutive month in November, the first such occurrence in nearly nine years,” Riehle added.
emphasis added

Click on graph for larger image.

The index decreased to 102.1 in November, down from 102.8 in October. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is another solid reading - and it is likely restaurants are benefiting from lower gasoline prices.