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Friday, May 20, 2016

A Few Comments on April Existing Home Sales

by Calculated Risk on 5/20/2016 01:39:00 PM

Earlier: Existing Home Sales increased in April to 5.45 million SAAR

First, please note that once again housing economist Tom Lawler nailed the NAR report.

I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.44 million in April
Second, I'd consider any existing home sales rate in the 5 to 5.5 million range solid based on the normal historical turnover of the existing stock. I've seen reports calling the February sales rate "dismal" and the March sales rate "a strong rebound". Nah. This is just normal volatility. Sales through April are up 5.5% from the same period in 2015.  A solid increase.

As always, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale.

For existing homes, inventory is still key.  I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 3.6% year-over-year in April). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were convert to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in April (red column) were the highest for April since 2006 (NSA).

Note that January and February are usually the slowest months of the year and March and April are the beginning of the "selling season".  This is a solid start to the year.

BLS: Unemployment Rates stable in 41 states in April

by Calculated Risk on 5/20/2016 11:31:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were significantly lower in April in 5 states, higher in 4 states, and stable in 41 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today.
...
South Dakota and New Hampshire had the lowest jobless rates in April, 2.5 percent and 2.6 percent, respectively. The unemployment rate in Arkansas (3.9 percent) set a new series low. (All region, division, and state series begin in 1976.) Alaska and Illinois had the highest rates, 6.6 percent each.
emphasis added
State Unemployment Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. Alaska and Illinois, at 6.6%, had the highest state unemployment rates.

State UnemploymentThe second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only seven states and D.C are at or above 6% (dark blue).

Existing Home Sales increased in April to 5.45 million SAAR

by Calculated Risk on 5/20/2016 10:09:00 AM

From the NAR: Existing-Home Sales Rise in April for Second Straight Month

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.7 percent to a seasonally adjusted annual rate of 5.45 million in April from an upwardly revised 5.36 million in March. After last month's gain, sales are now up 6.0 percent from April 2015. ...

Total housing inventory at the end of April increased 9.2 percent to 2.14 million existing homes available for sale, but is still 3.6 percent lower than a year ago (2.22 million). Unsold inventory is at a 4.7-month supply at the current sales pace, up from 4.4 months in March.
Existing Home SalesClick on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in April (5.45 million SAAR) were 1.7% higher than last month, and were 6.0% above the April 2015 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory increased to 2.14 million in April from 1.96 million in March.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Year-over-year Inventory Inventory decreased 3.6% year-over-year in April compared to April 2015.  

Months of supply was at 4.7 months in April.

This was slightly above consensus expectations. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

Thursday, May 19, 2016

Friday: Existing Home Sales

by Calculated Risk on 5/19/2016 06:21:00 PM

Friday:
• At 10:00 AM ET, Existing Home Sales for April from the National Association of Realtors (NAR). The consensus is for 5.40 million SAAR, up from 5.33 million in March.


• Also at 10:00 AM: Regional and State Employment and Unemployment for April 2016

Brad Setser was a daily read for me years ago, and he has started blogging again at Follow the Money: It Has Been a Long Time

I stopped blogging almost seven years ago.

My interests have not really changed too much since then. There was a time when I was far more focused on Europe than China. But right now, the uncertainty around China is more compelling to me than the questions that emerge from the euro area’s still-incomplete union.

Some of the crucial issues have not changed. The old imbalances are starting to reappear, at least on the manufacturing side. China’s trade surplus is big once again—even if the recent rise in the goods surplus (from less than $300 billion a couple years back to around $600 billion in 2015) has not been matched by a parallel rise in China’s current account surplus. The U.S. non-petrol deficit is also big, and rising quite fast.

But some big things have also changed.

The United States imports a lot less oil, and pays a lot less for the oil it does import. That has held down the overall U.S. trade deficit.

LA area Port Traffic Declined in April

by Calculated Risk on 5/19/2016 02:32:00 PM

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

LA Area Port TrafficClick on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 0.7% compared to the rolling 12 months ending in March.   Outbound traffic was down 0.8% compared to 12 months ending in March.

The downturn in exports over the last year was probably due to the slowdown in China and the stronger dollar.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

LA Area Port TrafficUsually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

In general exports are moving sideways and imports are gradually increasing.

Earlier: Chicago Fed "Index shows economic growth picked up in April"

by Calculated Risk on 5/19/2016 12:07:00 PM

The Chicago Fed released the national activity index (a composite index of other indicators): Economic Growth Picked Up in April

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.10 in April from –0.55 in March. All four of the broad categories of indicators that make up the index increased from March, but three of the four categories made nonpositive contributions to the index in April.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.22 in April from –0.18 in March. April’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed National Activity Index Click on graph for larger image.

This suggests economic activity was below the historical trend in April (using the three-month average).

According to the Chicago Fed:
What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Earlier: Philly Fed Manufacturing Survey showed Slight Contraction in May

by Calculated Risk on 5/19/2016 10:01:00 AM

Earlier from the Philly Fed: May 2016 Manufacturing Business Outlook Survey

Firms responding to the Manufacturing Business Outlook Survey continued to report tenuous growth this month. The indicator for general activity was essentially unchanged in May and remained slightly negative. Other broad indicators also reflected general weakness in business conditions. The indicator for employment improved but remained negative. Manufacturers’ forecasts of future activity tempered slightly from last month, overall, but continue to suggest confidence in future growth.
...
The diffusion index for current activity was essentially unchanged at -1.8 this month. The index has registered a negative reading in eight of the last nine months ...

The survey’s indicators of employment reflect similar weakness in May. Despite improving 15 points this month, the employment index registered its fifth consecutive negative reading, at -3.3.
emphasis added
This was below the consensus forecast of a reading of 3.0 for May.

ISM PMI Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The yellow line is an average of the NY Fed (Empire State) and Philly Fed surveys through May. The ISM and total Fed surveys are through April.

The average of the Empire State and Philly Fed surveys turned negative in May (yellow).  This suggests the ISM survey will probably be below 50 this month.

Weekly Initial Unemployment Claims decrease to 278,000

by Calculated Risk on 5/19/2016 08:33:00 AM

The DOL reported:

In the week ending May 14, the advance figure for seasonally adjusted initial claims was 278,000, a decrease of 16,000 from the previous week's unrevised level of 294,000. The 4-week moving average was 275,750, an increase of 7,500 from the previous week's unrevised average of 268,250.

There were no special factors impacting this week's initial claims. This marks 63 consecutive weeks of initial claims below 300,000, the longest streak since 1973.
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 275,750.

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

Wednesday, May 18, 2016

Thursday: Unemployment Claims, Philly Fed Mfg Survey

by Calculated Risk on 5/18/2016 05:30:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released.  The consensus is for 275 thousand initial claims, down from 294 thousand the previous week.

• Also at 8:30 AM: the Philly Fed manufacturing survey for May. The consensus is for a reading of 3.0, up from -1.6.

• Also at 8:30 AM, Chicago Fed National Activity Index for April. This is a composite index of other data.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Spike to 6-Week Highs After Fed Minutes

Mortgage rates skyrocketed today, relative to their recent average daily movement, following the release of the Minutes from the most recent Fed meeting. At the time of the Fed's last policy announcement at the end of April, financial markets were nervous that the Fed would more firmly indicate their intention to hike at the June meeting. When that announcement had no such clues, markets breathed a sigh of relief and rates moved steadily lower in the following weeks
...
Long story short, the Fed is leaving it's June rate hike options open. The Fed rate doesn't directly dictate mortgage rates, but mortgage rates do tend to reflect future expectations of the Fed's rate hike path. Today ended up being the biggest single day jump in rates since early February. Almost any lender will be quoting conventional 30yr fixed rates an eighth of a point higher than they were yesterday, with the most prevalent quote moving back up to 3.75% for the first time this month.
emphasis added

FOMC Minutes: "Most participants judged" that June rate hike "appropriate" based on data

by Calculated Risk on 5/18/2016 02:00:00 PM

The FOMC believes that market participants are underestimating the likelihood of a rate hike in June.

From the Fed: Minutes of the Federal Open Market Committee, April 26-27, 2016 . Excerpts:

Participants discussed whether their current assessments of economic conditions and the medium-term outlook warranted increasing the target range for the federal funds rate at this meeting. Participants agreed that incoming indicators regarding labor market developments continued to be encouraging. They generally concurred that data releases during the intermeeting period on components of private domestic demand had been disappointing, but most participants judged that the slowdown in growth of domestic spending would be temporary, citing possible measurement problems and other transitory factors. Financial market conditions continued to improve, providing support to aggregate demand and suggesting that market participants saw some reduction in downside risks to the outlook: Equity prices rose further, credit spreads declined somewhat, and the dollar depreciated over the intermeeting period. Taking these developments into account, participants generally judged that the medium-term outlook for economic activity and the labor market had not changed appreciably since the previous meeting. Furthermore, most participants continued to expect that, with labor markets continuing to strengthen, the dollar no longer appreciating, and energy prices apparently having bottomed out, inflation would move up to the Committee's 2 percent objective in the medium run.

Still, with 12-month PCE inflation continuing to run below the Committee's 2 percent objective, a number of participants judged that it would be appropriate to proceed cautiously in removing policy accommodation. Some participants pointed to the risk that the recent weak data on domestic spending could reflect a loss of momentum in the economy that might hinder further gains in the labor market and raise the likelihood that inflation could fail to increase as expected. Accordingly, these participants believed that it would be important to evaluate whether incoming information was consistent with their expectation that economic growth would pick up and thus support continued improvement in the labor market. In addition, a number of participants judged that the risks to the outlook for inflation remained tilted to the downside in light of low readings on measures of inflation compensation and the fall over the past year in some survey measures of longer-term inflation expectations. Also, many participants noted that downside risks emanating from developments abroad, while reduced, still warranted close monitoring. For these reasons, participants generally saw maintaining the target range for the federal funds rate at 1/4 to 1/2 percent at this meeting and continuing to assess developments carefully as consistent with setting policy in a data-dependent manner and as leaving open the possibility of an increase in the federal funds rate at the June FOMC meeting.

Some participants saw limited costs to maintaining a patient posture at this meeting but noted the risks--including potential risks to financial stability--of waiting too long to resume the process of removing policy accommodation, especially given the lags with which monetary policy affects the economy. A couple of participants were concerned that further postponement of action to raise the federal funds rate might confuse the public about the economic considerations that influence the Committee's policy decisions and potentially erode the Committee's credibility.

A few participants judged it appropriate to increase the target range for the federal funds rate at this meeting, citing their assessments that downside risks associated with global economic and financial developments had diminished substantially since early this year, that labor market conditions were consistent with the Committee's maximum-employment objective, and that inflation was likely to rise this year toward the Committee's 2 percent objective. Two participants noted that several standard policy benchmarks, such as a number of interest rate rules and some measures of the equilibrium real interest rate, continued to imply values for the federal funds rate well above the current target range. Such large and persistent deviations of the federal funds rate from these benchmarks, in their view, posed a risk that the removal of policy accommodation was proceeding too slowly and that the Committee might, in the future, find it necessary to raise the federal funds rate quickly to combat inflation pressures, potentially unduly disrupting economic or financial activity. Overly accommodative policy could also induce imprudent risk-taking in financial markets, posing additional risks to achieving the Committee's goals in the future.

Participants agreed that their ongoing assessments of the data and other incoming information, as well as the implications for the outlook, would determine the timing and pace of future adjustments to the stance of monetary policy. Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June. Participants expressed a range of views about the likelihood that incoming information would make it appropriate to adjust the stance of policy at the time of the next meeting. Several participants were concerned that the incoming information might not provide sufficiently clear signals to determine by mid-June whether an increase in the target range for the federal funds rate would be warranted. Some participants expressed more confidence that incoming data would prove broadly consistent with economic conditions that would make an increase in the target range in June appropriate. Some participants were concerned that market participants may not have properly assessed the likelihood of an increase in the target range at the June meeting, and they emphasized the importance of communicating clearly over the intermeeting period how the Committee intends to respond to economic and financial developments.
emphasis added