by Calculated Risk on 5/01/2015 12:12:00 PM

Earlier today, the Census Bureau reported that overall construction spending decreased in March:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during March 2015 was estimated at a seasonally adjusted annual rate of $966.6 billion, 0.6 percent below the revised February estimate of $972.9 billion. The March figure is 2.0 percent above the March 2014 estimate of $947.3 billion.

Both Private and public spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $702.4 billion, 0.3 percent below the revised February estimate of $704.7 billion. ...

In March, the estimated seasonally adjusted annual rate of public construction spending was $264.2 billion, 1.5 percent below the revised February estimate of $268.2 billion.
emphasis added

Note: Non-residential for offices and hotels is generally increasing, but spending for oil and gas is declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil 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 22% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 16% year-over-year.

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 has been moving sideways, and is 48% below the bubble peak.

Non-residential spending is 15% below the peak in January 2008.

Public construction spending is now 19% below the peak in March 2009 and about 1% 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 down 2.5%. Non-residential spending is up 9% year-over-year. Public spending is unchanged 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 spending for January and February was revised up.

by Calculated Risk on 5/01/2015 10:01:00 AM

The ISM manufacturing index suggested sluggish expansion in April. The PMI was at 51.5% in April, unchanged from 51.5% in March. The employment index was at 48.3%, down from 50.0% in March, and the new orders index was at 53.5%, up from 51.8%.

From the Institute for Supply Management: April 2015 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in April for the 28th consecutive month, and the overall economy grew for the 71st 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 April PMI® registered 51.5 percent, the same reading as in March. The New Orders Index registered 53.5 percent, an increase of 1.7 percentage points from the reading of 51.8 percent in March. The Production Index registered 56 percent, 2.2 percentage points above the March reading of 53.8 percent. The Employment Index registered 48.3 percent, 1.7 percentage points below the March reading of 50 percent, reflecting contracting employment levels from March. Inventories of raw materials registered 49.5 percent, a decrease of 2 percentage points from the March reading of 51.5 percent. The Prices Index registered 40.5 percent, 1.5 percentage points above the March reading of 39 percent, indicating lower raw materials prices for the sixth consecutive month. While the March and April PMI® were equal, both registering 51.5 percent, 15 of the 18 manufacturing industries reported growth in April while only 10 industries reported growth in March, indicating a broader distribution of growth in April among the 18 industries."
emphasis added

Click on graph for larger image.

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

This was below expectations of 52.0%, but still indicates expansion in April.

by Calculated Risk on 5/01/2015 07:11:00 AM

The Case-Shiller house price indexes for February were released this week. Zillow forecasts Case-Shiller a month early - now including the National Index - and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: March Case-Shiller Forecast: 20-City Index to Show Annual Growth Above 5% Once Again

The February S&P/Case-Shiller (SPCS) data published today showed a slight uptick in home value appreciation for the 10- and 20-City indices, compared to the prior month. However, appreciation in the national index fell slightly in February, to an annual pace of 4.2 percent, from 4.4 percent in January 2015. Annual appreciation in the national series hit a post-bubble peak of 10.9 percent in October 2013 and has declined in every month since December 2013.

The 10- and 20-City Composite Indices both experienced modest bumps in annual growth rates in February; the 10-City index rose 4.8 percent and the 20-City Index rose to 5 percent, up from rates of 4.3 percent and 4.5 percent, respectively, in January. The non-seasonally adjusted (NSA) 10- and 20-City indices were each up 0.5 percent in February from January, and we expect both to show further gains in March.

All forecasts are shown in the table below. These forecasts are based on the February SPCS data release and the March 2015 Zillow Home Value Index (ZHVI), published April 22. Officially, the SPCS Composite Home Price Indices for March will not be released until Tuesday, May 26.

So the year-over-year change in for March Case-Shiller National index will be about the same as in the February report.

Zillow Case-Shiller Forecast
	Case-Shiller Composite 10		Case-Shiller Composite 20		Case-Shiller National
	NSA	SA	NSA	SA	NSA	SA
February Actual YoY	4.8%	4.8%	5.0%	5.0%	4.2%	4.2%
March Forecast YoY	4.9%	4.9%	5.2%	5.2%	4.2%	4.2%
March Forecast MoM	0.9%	1.0%	1.0%	0.9%	0.5%	0.2%

From Zillow:

Annual appreciation in the Zillow Home Value Index (ZHVI) peaked in April 2014 and has declined since then. In March, the U.S. ZHVI rose 3.9 percent year-over-year, the first month in two years that home values grew at less than 4 percent annually. The annual appreciation rate in home values has fallen for the past 11 months. The February Zillow Home Value Forecast calls for a 2.6 percent rise in home values through February 2016. Further details on our forecast of home values can be found here.

by Calculated Risk on 4/30/2015 09:00:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in March to 1.78% from 1.83% in February. The serious delinquency rate is down from 2.19% in March 2014, and this is the lowest level since September 2008.

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

Earlier Freddie Mac reported that the Single-Family serious delinquency rate was declined in March to 1.73%. Freddie's rate is down from 2.20% in March 2014, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.41 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will be close to 1% in late 2016.

The "normal" serious delinquency rate is under 1%, so maybe serious delinquencies will be close to normal at the end of 2016.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog, especially in judicial foreclosure states like Florida.

Friday:
• At 10:00 AM ET, ISM Manufacturing Index for April. The consensus is for an increase to 52.0 from 51.5 in March. The ISM manufacturing index indicated expansion at 51.5% in March. The employment index was at 50.0%, and the new orders index was at 51.8%.

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

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (final for April). The consensus is for a reading of 96.0, up from the preliminary reading of 95.9, and up from the March reading of 93.0.

• All day: Light vehicle sales for April. The consensus is for light vehicle sales to decrease to 16.9 million SAAR in April from 17.05 million in March (Seasonally Adjusted Annual Rate).

by Calculated Risk on 4/30/2015 05:25:00 PM

The BEA released the underlying details for the Q1 advance GDP report today.

Yesterday, the BEA reported that investment in non-residential structures decreased at a 23.1% annual rate in Q1.

All of the decline could be attributed to less petroleum exploration and less investment in electrical. Both declined at a 50% annual rate in Q1.

There was some weakness in lodging investment, but that might be weather related. Excluding petroleum and electrical, non-residential investment in structures was unchanged in Q1.

Click on graph for larger image.

The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level.

Investment in offices increased slightly in Q1, is down about 43% from the recent peak (as a percent of GDP) and increasing from a very low level - and is still below the lows for previous recessions (as percent of GDP).  With the high office vacancy rate, office investment will only increase slowly.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 59% from the peak.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment declined in Q1, but with the hotel occupancy rate near record levels, it is likely that hotel investment will increase in the near future.  Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 65%.  

The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Investment in single family structures is now back to being the top category for residential investment.  Home improvement was the top category for twenty consecutive quarters following the housing bust ... but now investment in single family structures has been back on top for the last 6 quarters and will probably stay there for a long time.

However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

Investment in single family structures was $204 billion (SAAR) (over 1.1% of GDP).

Investment in home improvement was at a $182 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (just over 1.0% of GDP).

These graphs show investment is generally increasing, but from a very low level.