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Friday, January 13, 2017

Retail Sales increased 0.6% in December

by Calculated Risk on 1/13/2017 09:12:00 AM

On a monthly basis, retail sales increased 0.6 percent from November to December (seasonally adjusted), and sales were up 4.1 percent from December 2015.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for December 2016, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $469.1 billion, an increase of 0.6 percent from the previous month, and 4.1 percent above December 2015. Total sales for the 12 months of 2016 were up 3.3 percent from 2015. ... The October 2016 to November 2016 percent change was revised from up 0.1 percent to up 0.2 percent.
Retail Sales Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline were up 0.5% in December.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Year-over-year change in Retail Sales Retail and Food service sales ex-gasoline increased by 4.0% on a YoY basis.

The increase in December was below expectations, however sales for October and November were revised up. A solid report.

Thursday, January 12, 2017

Friday: Retail Sales, PPI, Consumer Sentiment

by Calculated Risk on 1/12/2017 07:39:00 PM

From Matthew Graham at Mortgage News Daily: Mixed Bag For Mortgage Rates Amid Market Volatility

Mortgage rates were mixed today, depending on the lender.
...
4.125% is still the most prevalent conventional 30yr fixed rate on top tier scenarios, with today's losses seen in the form of higher upfront costs.
emphasis added
Friday:
• At 8:30 AM ET, Retail sales for December will be released.  The consensus is for 0.7% increase in retail sales in December.

• At 8:30 AM, The Producer Price Index for December from the BLS. The consensus is for a 0.3% increase in prices, and a 0.1% increase in core PPI.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for November.  The consensus is for a 0.6% increase in inventories.

• At 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for January). The consensus is for a reading of 98.6, up from 98.2 in November.

Question #2 for 2017: How much will the economy grow in 2017?

by Calculated Risk on 1/12/2017 02:01:00 PM

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.

2) Economic growth: Heading into 2017, most analysts are pretty sanguine and expecting some pickup in growth due to tax cuts and infrastructure spending.   How much will the economy grow in 2017?

Here is a table of the annual change in real GDP since 2007.  Economic activity has mostly been in the 2% range since 2010.  Given current demographics, that is about what we'd expect: See: 2% is the new 4%.


Annual Real GDP Growth
YearGDP
20053.3%
20062.7%
20071.8%
2008-0.3%
2009-2.8%
20102.5%
20111.6%
20122.2%
20131.7%
20142.4%
20152.6%
201611.7%
1 2016 estimate.


It is possible that there will be a pickup in growth in 2017 due to a combination of factors.

The new administration's policy proposals are unclear, but it appears there will be tax cuts, possibly more government spending on infrastructure, and possibly less regulation (easier borrowing).  

There will probably be some economic boost from oil sector investment in 2017 since oil prices have increased (this was a drag last year).

The housing recovery is ongoing, however auto sales might have peaked.

And demographics are improving (the prime working age population is growing about 0.5% per year, compared to declining a few years ago).

All these factors combined will probably push GDP growth into the mid-to-high 2% range in 2017, but this will depend somewhat on which policies are enacted.

Here are the Ten Economic Questions for 2017 and a few predictions:

Question #1 for 2017: What about fiscal and regulatory policy in 2017?
Question #2 for 2017: How much will the economy grow in 2017?
Question #3 for 2017: Will job creation slow further in 2017?
Question #4 for 2017: What will the unemployment rate be in December 2017?
Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?
Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?
Question #7 for 2017: How much will wages increase in 2017?
Question #8 for 2017: How much will Residential Investment increase?
Question #9 for 2017: What will happen with house prices in 2017?
Question #10 for 2017: Will housing inventory increase or decrease in 2017?

Lawler: New “Household” Numbers, Same Old Conundrum

by Calculated Risk on 1/12/2017 11:08:00 AM

From housing economist Tom Lawler: New “Household” Numbers, Same Old Conundrum

Housing Survey (AHS) for 2015, and the “Families and Living Arrangements” data from the Annual Social and Economic Supplement to the Current Population Survey (or CPS/ASEC) for 2016. Both surveys produce estimates (wildly different, of course) of – among other things – the number of US households and the homeownership rate.

Starting with the American Housing Survey, 2015 marked the first time since 1985 that the AHS was based on new national and metropolitan area “longitudinal” samples based on the latest available Master Address File. From 1985 through 2013 the AHS sample was mainly based on housing units selected from the 1980 Census as well as samples of housing units subsequently constructed in areas requiring building permits. Not surprisingly, the previous methodology was subject to sizable “sampling” issues. The 2015 “national’ estimates are based on (1) a “national case” sample of 34,769 representative of the US and nine divisions; (2) a 45,270 “over-sample” of top 15 metropolitan areas; (3) a 30,111 over-sample of 10 additional metropolitan areas; and (4) a 5,248 oversample of subsidized renter units.

The AHS household estimates are “controlled” to independent estimates of the US housing stock in much the same was as are the household estimates from the Housing Vacancy Survey, a supplement to the Current Population Survey. And while the AHS-based US household estimates for 2015 in aggregate aren’t massively different from that of the HVS, the characteristics of the AHS-based households for 2015 are vastly different, and are more in synch with those of the 2015 American Community Survey, as shown in the table below.

2015 US Household Estimates by Age Group, Various Census Surveys
  AHSHVSACS
Total118,290117,397118,209
15-24 4,3476,1254,441
25-3418,09619,10617,885
35-4420,44119,91720,576
45-5423,53422,02123,238
55-6423,63822,06823,069
65-7416,29215,99616,524
75+11,94212,16412,476

What is especially striking are the rather sizable differences in the shares of US households by age group between the the HVS estimates and the ACS or AHS estimates, with the HVS estimates suggesting a much larger “young-adult’ share of total households.

Even more striking are the differences in the homeowner estimates by age group.

2015 US Homeowner Estimates by Age Group, Various Census Surveys
  AHSHVSACS
Total74,36074,74174,506
15-24 5011,336577
25-346,4857,4936,582
35-4411,74311,64511,599
45-5415,96815,41315,853
55-6417,67416,64517,285
65-7412,91712,81913,160
75+9,0729,3909,450

As this table indicates, the HVS estimates for young-adult homeowners are vastly higher than the AHS and ACS estimates.

Census also produces household estimates based on the CPS Annual Social and Economic Supplement (CPS./ASEC) which are not controlled to independent housing stock estimates, but instead to independent estimates of the civilian non-institutionalized population. Since (1) CPS-based surveys overstate housing vacancy rates; and (2) housing stock estimates appear to be understated, CPS/ASEC household estimates are higher than CPS/HVS estimates.

While AHS, HVS, and ACS estimates are more or less annual averages, CPS/ASEC estimates are for March, and the last two estimates for the latter are shown below.

US Household Estimates by Age Group, Various Census Surveys
AHS (2015)HVS (2015)ACS (2015)CPS/ASEC (Mar 2015)CPS/ASEC (Mar 2016)
Total118,290117,397118,209124,587125,819
15-244,3476,1254,4416,3706,361
25-3418,09619,10617,88520,07520,047
35-4420,44119,91720,57621,12121,222
45-5423,53422,02123,23823,56623,295
55-6423,63822,06823,06923,50923,896
65-7416,29215,99616,52416,88617,551
75+11,94212,16412,47613,06113,448

Again, what is “most striking” about the numbers in this table is the substantially higher estimates of young adult householders from the CPS-based surveys relative to the other surveys.

(I’ll have much more on this topic later, including an assessment of the reliability of the household estimates from these surveys).

Weekly Initial Unemployment Claims increase to 247,000

by Calculated Risk on 1/12/2017 08:54:00 AM

The DOL reported:

In the week ending January 7, the advance figure for seasonally adjusted initial claims was 247,000, an increase of 10,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 235,000 to 237,000. The 4-week moving average was 256,500, a decrease of 1,750 from the previous week's revised average. The previous week's average was revised up by 1,500 from 256,750 to 258,250.

There were no special factors impacting this week's initial claims. This marks 97 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
emphasis added
The previous week was revised up.

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 decreased to 256,500.

This was below the consensus forecast (it is difficult to seasonally adjusted during the holidays). The low level of claims suggests relatively few layoffs.

Wednesday, January 11, 2017

CNBC's Liesman: Trump's colossal error on jobs during his press conference

by Calculated Risk on 1/11/2017 07:44:00 PM

From CNBC's Steve Liesman: Donald Trump's colossal error on jobs during his press conference

Trump said that there "are 96 million wanting a job and they can't get (one). You know that story. The real number. That's the real number."

It is unfortunately very far from the real number. There are in fact 96 million Americans age 16 and older who are not in the labor force. Of this, just 5.4 million, or 91 million fewer than the number cited by Trump, say they want a job. The rest are retired, sick, disabled, running their households or going to school.
This is a serious problem. Trump is at war with the data. There is a concern that Trump (and Congress) will defund the BLS and other data gathering agencies if he doesn't like what they report.

Phoenix Real Estate in December: Sales up 6%, Inventory down 3%

by Calculated Risk on 1/11/2017 02:31:00 PM

This is a key housing market to follow since Phoenix saw a large bubble and bust, followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in December were up 5.9% year-over-year.

2) Cash Sales (frequently investors) were down to 23.1% of total sales.

3) Active inventory is now down 2.9% year-over-year.  

More inventory (a theme in most of 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster -  Prices were up 6.3% in 2015 according to Case-Shiller.

This is the second consecutive month with a YoY decrease in inventory following eight months with YoY increases.  This might be a change in trend - something to watch.

December Residential Sales and Inventory, Greater Phoenix Area, ARMLS
  SalesYoY
Change
Sales
Cash
Sales
Percent
Cash
Active
Inventory
YoY
Change
Inventory
Dec-085,524---1,66530.1%53,7921---
Dec-097,66138.7%3,00839.3%39,709-26.2%1
Dec-108,4019.7%3,93946.9%42,4636.9%
Dec-117,843-6.6%3,63546.3%24,712-41.8%
Dec-127,071-9.8%3,21145.4%21,095-14.6%
Dec-135,930-16.1%2,05334.6%25,51120.9%
Dec-146,4759.2%1,89329.2%25,052-1.8%
Dec-156,7564.3%1,61723.9%23,053-8.0%
Dec-167,1545.9%1,65523.1%22,388-2.9%
1 December 2008 probably includes pending listings

Question #3 for 2017: Will job creation slow further in 2017?

by Calculated Risk on 1/11/2017 10:27:00 AM

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.

3) Employment: Through November1, the economy has added almost 2,000,000 jobs this year, or 180,000 per month. As expected, this was down from the 230 thousand per month in 2015. Will job creation in 2017 be as strong as in 2016? Or will job creation be even stronger, like in 2014 or 2015? Or will job creation slow further in 2017?

1Note: The December jobs report was released after I wrote this question. For 2017, the economy added 2.157 million jobs, or 180,000 per month.

For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.  For total and private employment gains, 2014 and 2015 were the best years since the '90s, however it appears job growth peaked in 2014.

Change in Payroll Jobs per Year (000s)
Total, NonfarmPrivatePublic
19973,4073,212195
19983,0472,734313
19993,1792,718461
20001,9511,687264
2001-1,726-2,277551
2002-500-733233
2003113155-42
20042,0421,895147
20052,5142,328186
20062,0921,883209
20071,147859288
2008-3,569-3,749180
2009-5,070-4,996-74
20101,0661,282-216
20112,0872,399-312
20122,1492,219-70
20132,3112,378-67
20143,0152,885130
20152,7442,65193
20162,1571,974183

The good news is the economy still has solid momentum heading into the new year.

The bad news - for job growth - is that a combination of demographics and a labor market nearing full employment suggests fewer jobs will be added in 2017.  Of course that should be good news for wages.

Note: Too many people compare to the '80s and '90s, without thinking about changing demographics. The prime working age population (25 to 54 years old) was growing 2.2% per year in the '80s, and 1.3% per year in the '90s. The prime working age population has actually declined slightly this decade. Note: The prime working age population is now growing slowly again, and growth will pick up the '20s.

In 2016, public employment added to total employment for the third consecutive year, but still at a fairly low level. Public hiring in 2017 will probably be similar to 2016.

The second table shows the change in construction and manufacturing payrolls starting in 2006.

Construction Jobs (000s)Manufacturing (000s)
2006152-178
2007-195-269
2008-789-896
2009-1,047-1,375
2010-187120
2011144207
2012117158
2013211126
2014362208
201529626
2016102-45

Energy related construction hiring declined in 2016, but will probably rebound a little in 2017 since oil prices have increased.  For manufacturing, there will probably be little or no growth in the auto sector in 2017, and there will be an additional drag on manufacturing employment from the strong dollar.

So my forecast is for gains of 125,000 to 150,000 payroll jobs per month in 2017.  Lower than in 2016, but another solid year for employment gains given current demographics.

Here are the Ten Economic Questions for 2017 and a few predictions:

Question #1 for 2017: What about fiscal and regulatory policy in 2017?
Question #2 for 2017: How much will the economy grow in 2017?
Question #3 for 2017: Will job creation slow further in 2017?
Question #4 for 2017: What will the unemployment rate be in December 2017?
Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?
Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?
Question #7 for 2017: How much will wages increase in 2017?
Question #8 for 2017: How much will Residential Investment increase?
Question #9 for 2017: What will happen with house prices in 2017?
Question #10 for 2017: Will housing inventory increase or decrease in 2017?

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Calculated Risk on 1/11/2017 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 5.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 6, 2017. The most recent week’s results include an adjustment to account for the New Year’s Day holiday, while the previous week’s results were adjusted for the Christmas holiday.

... The Refinance Index increased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier. The unadjusted Purchase Index increased 45 percent compared with the previous week and was 18 percent lower than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.32 percent from 4.39 percent, with points decreasing to 0.41 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

It would take a substantial increase in mortgage rates to see a significant increase in refinance activity - although we might see more cash-out refis.


Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.

Even with the increase in mortgage rates, purchase activity is still holding up.  However refinance activity has declined significantly.

Tuesday, January 10, 2017

Thoma: "Here's what really caused the housing crisis"

by Calculated Risk on 1/10/2017 05:31:00 PM

An excellent overview from Professor Mark Thoma: Here's what really caused the housing crisis. Excerpt:

As the author of the research, Antoinette Schoar, explained in an interview:

“A lot of the narrative of the financial crisis has been that this [loan] origination process was broken, and therefore a lot of marginal and unsustainable borrowers got access to funding. In our opinion, the facts don’t line up with this narrative. … Calling this crisis a subprime crisis is a misnomer. In fact, it was a prime crisis.”
When analysts were calling it a "subprime crisis", my former co-blogger Tanta wrote "We are all subprime now!"  Subprime was just the first area of stress - this was a widespread crisis.

From Thoma:
As noted in a study by McClatchy from 2008, “Federal Reserve Board data show that more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions;” “private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year;” and “only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.”
Those who blame the CRA or Fannie and Freddie don't understand what happened.

There were many causes to the crisis, but I believe the three keys were:

1) the change in lending practices and standards for private sector lending. As an example, the lenders used to use the three Cs: Credit, Capacity, and Collateral. At Tanta explained:
Does the borrower’s history establish creditworthiness, or the willingness to repay debt? Does the borrower’s current income and expense situation (and likely future prospects) establish the capacity or ability to repay the debt? Does the house itself, the collateral for the loan, have sufficient value and marketability to protect the lender in the event that the debt is not repaid?
Instead of using the three Cs, the private lenders innovated and just used FICO scores, and then eventually little or nothing to underwrite the loan.  There were other innovative changes in lending practices that didn't work out very well.

2) The rating agencies models were based on prior lending methods, and weren't adjusted sufficiently to account for the new (non-existent) underwriting standards.  This meant the private label MBS was rated to highly.

3) The regulators turned a blind eye to the loose lending and excessive concentrations.  I was talking with field regulators in 2005 and 2006, and they were all terrified.  I was told the appointees at the top of the agencies were blocking any effort to tighten standards.

There were many causes to the crisis, and Mark Thoma does a good job of debunking a few false narratives.